The Earnings Tax Division has notified guidelines for computation of honest market worth of capital property (FMV) in droop sale. Specialists really feel that these guidelines will create issue in tax planning for some companies.
These guidelines titled ‘Computation of Truthful Market Worth of Capital Belongings for the needs of part 50B of the Earnings-tax Act’ are a part of follow-up motion after Finance Act 2021 amended the stated part. These guidelines prescribe two choices (FMV 1 and FMV 2). The choice giving larger worth will likely be FMV of the capital property in droop sale. It could be famous that droop sale for tax calculation means when an organization or enterprise is bought with out contemplating the person values of the property or liabilities contained throughout the enterprise.
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FMV1 will likely be calculated primarily based on a components – ‘A+B+C+D – L’. Right here ‘A’ means e-book worth of all of the property (aside from jewelry, creative work, shares, securities and immovable property) as showing within the books of accounts of the enterprise or the division transferred by the use of droop sale. ‘B’ is the worth which the jewelry and creative work would fetch if bought within the open market. ‘C’ means honest market worth of shares and securities, whereas ‘D’ is the worth adopted or assessed or assessable by any authority of the Authorities for the aim of fee of stamp obligation in respect of the immovable property. ‘L’ refers back to the liabilities of the stated enterprise.
For FMV 2, the components ‘E+F+G+H’ will likely be used. Right here ‘E’ means worth of the financial consideration obtained or accruing on account of the switch/ ‘F’ means honest market worth of non-monetary consideration obtained or accruing on account of the switch represented by property. ‘G’ is the worth which the non-monetary consideration obtained or accruing on account of the switch represented by property, aside from immovable property. ‘H’ indicated the worth adopted or assessed or assessable by any authority of the Authorities for the aim of fee of stamp obligation in respect of the immovable property in case the non-monetary consideration obtained or accruing.
Commenting on the principles, Shailesh Kumar, Associate at Nangia & Co LLP stated that new guidelines present a hybrid components, the place all property of the enterprise enterprise aside from 5 particular classes of property (specifically, immovable property, jewelry, shares, securities and creative work) are valued, basically primarily based on e-book worth. However, FMV of those 5 specified classes is decided as per present valuation guidelines for these property, assuming these property are being transferred individually.
“The brand new valuation guidelines for valuation of enterprise enterprise in droop sale instances, now make tax planning in these instances harder, the place companies maintain high-value immovable property, shares or different specified property of their books at low historic price,” he stated. Additional, he added that in all such instances, now companies might want to pay tax contemplating FMV of specified property, no matter precise transaction worth, if such transaction worth is decrease than FMV.