Valuation - Income Tax Act

Service Description

The valuation of shares as per the Income Tax Act in India is governed by Section 56 of the Act. This section applies to the transfer of any property, including shares, for a consideration which is less than the fair market value of the property. In such cases, the difference between the fair market value and the consideration received is treated as income and is taxable under the head "Income from other sources". For the purpose of determining the fair market value of shares, the Income Tax Act provides for various methods of valuation, including: Net Asset Value (NAV) Method: Under this method, the fair market value of the shares is determined based on the net asset value of the company. The NAV is calculated by deducting the company's liabilities from its assets. Discounted Cash Flow (DCF) Method: This method involves estimating the future cash flows of the company and discounting them to their present value to arrive at the fair market value of the shares. The method to be used for valuation depends on the facts and circumstances of each case, and the valuer should use their judgment to select the most appropriate method. It is important to note that the valuation if it is as per DCF should be conducted by a Merchant Banker, and the report should comply with the requirements of the Income Tax Act and other applicable laws and regulations. Any Questions? Please write to us @ info@casnj.com or call us at 9845840207