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Valuation - under income tax


Valuation Services

One clients engaged in mergers and acquisition, we provide them valuation support services. It is with this specialist knowledge and understanding of our client’s needs that enable us to conduct valuations from a commercial perspective.

We provide following services:

  1. Fairness opinions / Independent value analysis on your target or investee companies.
  2. Independent value of specific business units within a company
  3. Pre deal Purchase Price allocation.
  4. Pricing and negotiation support
  5. Valuation of unquoted companies/ financial instruments.

Valuation Under Income Tax:

Under the Income tax act, 1961 the valuation rules are specified Under Rule 11U, Rule 11UA, Rule 11UAA and Rule 11UB for various provisions which cover valuation options in case of various assets including equity shares and other securities.

Two options of valuation are as:

  1. Fair Market Value: As per Rule 11U, when person requiring valuation don’t have any specific requirement, this method is used.
  2. Discounted Free Cash Flow Method: Only merchant Banker can do the Valuation of Securities, under this method.

Valuation of Property:

The process of assessing the value of property is also known as valuation. Valuation of property can be done with numerous methods. To both the buyer and sellers gets insight through valuation how to estimate the approximate worth of the property. Following are the methods:

  1. Comparable sales Method:
  2. Discounted value of rentals
  3. Automated valuations
  4. Income approach

Valuation of Goodwill:

Goodwill is an intangible asset which exists in reality and could be bought and sold but cannot be seen. The reputation of a firm built over time with respect to the expected future profits over and above the normal profit is known as Good will.

Methods of valuation of Good will:

  1. Average Profits Method
  2. Super Profits Method
  3. Capitalization Method

The buyer who pays for Good will expects that he will be able to earn super profits as compared to the profits earned by the other firms.

Valuation of Bonds:

For determining the theoretical fair value of a particular bond, bond valuation technique is used. Calculating the present value of the bond’s future interest payments also known as its cash flow is included in Bond valuation. Because a bond’s par value and interest payments are fixed , an investor uses bond valuation to determine what rate of return is required for a bond investment to be worthwhile.

Valuation for Startups:

Start up valuation methods are the ways in which a startup business owner can work out the value of their company. These methods are important because more often than not start ups are at a pre-revenue stage in their life span so there aren’t any hard facts or revenue figures to base the value of the business on.

Valuation Certificate:

Property Valuation Certificate is a legal document which certifies the details of the entry in the Register of Land Values. At the time of property sale or purchase, property valuation helps to determine the fair value of a property. From state to state the value of the property estimated varies.

Valuation Techniques:

To arrive at the value of a company there are many different possible techniques – a lot of which are company, industry, or situation specific there is relatively small subset of generally accepted valuation techniques that come into play quite frequently in many different scenarios. Following are different methods:

  1. Comparable Company Analysis: Evaluating other similar companies current valuation metrices determined by market prices and applying them to the company being valued.
  2. Discounted Cash flow Analysis : Valuing a company by projecting its future cash flows and then using the Net present value method to value the firm.
  3. Precedent Transaction Analysis : Looking at historical prices for completed M&A transactions involving similar companies to get a range of valuation multiples.
  4. Leverage Buyout:  Valuing a company by assuming the acquisition of the company via a leveraged buyout, which uses a significant amount of borrowed funds to fund the purchase and assuming a required rate of return for the purchasing entity.

Valuation Rule Under Gst :

On ad-valorem basis, GST requires computation on tax – tax being computed as percentage of the value of supply of goods and services. The invoice value in the most of the cases will be taxable value.

Specific businesses like Service of buying or selling of foreign currency, service performed by an air travel agent, service in relation to life insurance business, second hand goods Margin scheme, Redeemable Vouchers/ stamps/ coupons, service between distinct persons requires different rules for valuation. However these valuation methods are optional. The supplier at his option may opt for valuation based on the normal valuation rules as well.

Valuation Report Format:

A valuation report is a type of report writing detailing the inspection and the market value of the asset surveyed. This can be made for physical property for marketable securities and for liabilities. This report template is needed for business activities like capital budgeting and financial reporting.