Premium at the issue of shares

Premium at the issue of shares refers to the amount by which the issue price of a share exceeds its nominal (par) value when a company issues new shares. It represents an additional contribution to the company’s capital and is not considered taxable profit. Key Features Definition Share Premium = Issue Price of Share − Par Value of Share Share Premium=Issue Price of Share−Par Value of Share Contribution to Capital The premium forms part of the company’s capital reserves. It is recorded under “Share Premium Account” in the balance sheet. Non-Taxable Since it is a capital receipt, it is not treated as revenue or profit and is not subject to income tax. Uses of Share Premium According to corporate laws, share premium can typically be used for: Issuing fully paid bonus shares Writing off preliminary expenses or share issuance costs Buying back shares Funding capital-related expenses, subject to legal restrictions Example A company issues 10,000 shares with: Par value = ₹10 per share Issue price = ₹15 per share Share Premium = 10 , 000 × ( 15 − 10 ) = ₹ 50 , 000 Share Premium=10,000×(15−10)=₹50,000 This ₹50,000 is added to the Share Premium Account and contributes to the company’s capital reserves.