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What is income tax valuation?
In business, valuation refers to tracking the effectiveness of the performance and determining the fair value of the assets. Similarly, income tax valuation reports illuminate the taxes that will be charged on business assets. This step is crucial for taxpayers for future effective and well-informed decision-making.
When is tax valuation required for gift tax and transfer pricing?
In the case of gift tax, tax valuation is required when shares are issued or transferred for inadequate consideration at fair value. At the same time, tax valuation is required for transfer pricing when an issue or transfer of a company's shares and when certain intangible business rights are involved.
Why is income tax valuation required?
Income tax valuation India must fulfill the regulations for valuation of shares and taxed under various Indian acts such as Companies Act, 2013 and Income Tax Act, 1962. It is also important in case of litigation, for tax assessments, and for making financial reports.
What is the valuation for capital gain purposes?
Capital gains tax is a tax incurred on profit made by the owner on the sale of a capital asset like a piece of land. For a company, the valuation of unquoted shares is performed to calculate the minimum payable amount in transfer.
However, section 50D of the Income Tax Act, 1962 also states that when consideration accrued cannot be determined, then to ascertain capital gains tax, the asset's fair market value will be deemed as the consideration accrued on transfer.
Is income tax valuation required for indirect transfer tax provisions?
Yes, income tax valuation is required for indirect transfer tax provision. This is stipulated under Section 9 of the Income Tax Act, 1962, as any income accrued from indirect transfer of assets accrues or arises in India.
What purpose is fulfilled by obtaining income tax valuation?
The purpose fulfilled by income tax valuation is to conform to the guidelines and regulations stated in Income Tax Act, 1962. It is important for a business because it informs future decision-making and protects the business from frivolous litigation. Income tax valuation helps a business plan its future course, like making investments and hiring new employees.
Methodology of Income Tax Valuation- Gift Tax
As per Income Tax Rules, 1962, the DFCF method and net assets value methods are used to determine the maximum value for the issue of shares and minimum or fair price for the transfer of shares, respectively.
Methodology of Income Tax valuation- Transfer pricing
In Section 92C, (1) of the Income-Tax Act, 1961, to determine arm’s length price, the following methods are used- cost-plus method, profit split method, comparable uncontrolled price method, resale price method, transactional net margin method, and any other methods prescribed by the board.
Methodology of Income Tax Valuation- Valuation for capital gain purposes
The ‘Net Assets Value Method’ will be employed for income tax valuation for capital gains purposes. This is done as per Section 50 C of the Income Tax Act, 1961.
Methodology of Income Tax Valuation- Valuation of indirect transfer tax provisions
The fair market value of indirect transfer tax provisions of an Indian company is determined by a merchant banker or chartered accountant. The valuation will take place as per the internationally accepted income tax valuation method.
Who can conduct income tax valuation- gift tax?
According to the Income-tax Act, 1961, income tax valuation for gift tax is conducted by a SEBI registered merchant banker in case of equity shares and by a merchant banker or CA in cases other than equity shares.
Challenges faced while conducting Income Tax Valuation.
The challenge faced by income tax valuation firms while undertaking tax valuation is to properly understand the guidelines and facts to arrive at a fair value.
Our Income Tax Valuation Services
Our income tax valuation services are amongst the best in India. We offer our clients valuation services from professionals with years of experience and expertise. Our team of expert income tax valuation consultants includes SEBI registered merchant bankers and chartered accountants, who will prepare reports for tax valuation purposes. We are incredibly thorough in our research, so you can rest assured that we will help you arrive at a value for tax purposes.