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Income Tax Valuation

When is Tax Valuation required for Gift Tax?

As per section 56(2) (vii), (viia), (X) and (viib) of Income-Tax Act 1961, issue and transfer of shares of companies in which public is not substantially interested for nil / inadequate consideration is subjected to tax at fair value.

When is Tax Valuation required for Transfer Pricing?

As per sec 92C of Income Tax Act, any international transaction between associated entities needs to be done at Arm’s Length Price. Now, even in case of Domestic related party transactions above INR 20 cr. in a year, applicability of Transfer Pricing provisions has got triggered in case where issue or transfer of shares, business or certain rights (intangibles) is involved and requires Valuation.

ESOP Perquisite Tax Valuation (covered in our ESOP service page)

Valuation for Capital Gain purposes?

Valuation of Capital Gain purposes Sec 50 CA is a special provision for determination of minimum consideration in case of transfer of unquoted shares, being a capital asset.

Sec 50D states that where consideration for transfer of a Capital Asset is not ascertainable, its fair market value shall be deemed to be its consideration.

When is Tax Valuation required for Indirect Transfer Tax Provisions?

Under section 9 of the Income-tax Act, 1961 (the Act), income arising from indirect transfer of assets situated in India is deemed to accrue or arise in India. The share or interest is said to derive it value substantially from assets located in India, if fair market value (FMV) of assets located in India comprise at least 50% of the FMV of total assets of the company or entity. The computation of FMV of Indian and global assets is to be in the prescribed manner

Why to Obtain Tax Valuation?

Tax Valuation is required to meet with the regulatory guidelines in this respect. In recent past we have seen Indian Income Tax Department challenging valuation of Vodafone in the Transfer Pricing Case. The Transfer Pricing Officer is questioning on the use of comparables, validation of Business Model, Actual achievement of projected results and what not. Tax valuation is critical in any Deal transaction as it could lead to huge tax outgo and frivolous litigation.

Approaches and Methodologies for Tax Valuation - Gift Tax?

The fair value needs to be determined in accordance with Rule 11U, 11UA and 11UAA of Income Tax Rules, 1962. The rules have prescribed DFCF method for determination of maximum value for issue of shares and Net Assets Value method (at Fair Value) for transfer of shares.

Approaches and Methodologies for Tax Valuation - Transfer Pricing?

The following methods are used in determination of Arms length price namely comparable uncontrolled price method, profit split method and most importantly transactional net margin method. Courts have upheld use of DCF method while valuing Shares in Transfer Pricing matters.

Approaches and Methodologies for Tax Valuation - Valuation for Capital Gain purposes?

Valuation of unquoted shares under section 50 CA for determination of minimum consideration in case of transfer of unquoted shares, being a capital asset shall be done in accordance with Net Assets Value method (at Fair Value)

Approaches and Methodologies for Tax Valuation – Valuation of Indirect Transfer Tax Provisions?

For Valuation of unquoted shares of an Indian Company, the Fair Market Value of shares shall be determined by a merchant banker or a Chartered Accountant in accordance with any internationally accepted valuation methodology

Who can do Tax Valuation for Gift Tax?

The fair value must be duly certified by a CA (FCA or SEBI registered category - 1 Merchant Banker in case of section 56(2) (viib) for determination of maximum price of shares). However in case of shares other than equity shares, the valuation shall be conducted by a SEBI registered category - 1 Merchant Banker or a CA.

Challenges for Tax Valuation?

Challenge for a Tax Valuer is to understand the facts and arrive at a fair value.

Our Tax Valuation Practice

We are a SEBI Registered (Cat-I) Merchant Banker and our dedicated valuation team with extensive experience will help you in quantifying the value for Tax purposes. We do a detailed analysis of the Company history and its business and Comparable Companies multiples for arriving at value for Tax purposes. We have a specialized Tax team which comes in a league of one of the best Income Tax Valuation Consultants in India.

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