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New rules notified for determining deemed consideration for slump sale; key things to know

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slump sale transactions, CBDTCBDT has now prescribed the foundations containing the mechanism referring to computation of the FMV in hunch sale transactions.

By Anish Shah

Union Price range 2021 launched vital amendments within the provisions referring to the taxation of hunch sale transactions. One of many key amendments is in relation to computation of consideration worth for hunch sale taxation. Earlier, the consideration really paid or acquired on the hunch sale was thought of for figuring out the capital positive factors tax on the sale.

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The Finance Act, 2021 has nonetheless supplied that to compute the tax arising on account of such hunch sale, the Honest Market Worth (FMV) of the capital belongings (being an endeavor or division transferred by means of hunch sale) shall be deemed to be full worth of the consideration. Nonetheless, the methodology to compute FMV was not prescribed by the Finance Act, 2021.

The Central Board of Direct Taxes has now prescribed the foundations containing the mechanism referring to computation of the FMV in hunch sale transactions. The rule gives two strategies to calculate the FMV of the capital belongings transferred by means of hunch sale.

As per methodology 1, FMV is actually the guide worth of the endeavor which is adjusted for honest worth of sure belongings comparable to jewelry, inventive work, shares, securities, and immovable properties (Adjusted guide internet price methodology). The honest worth of such belongings specified above must be computed as per the prescribed tax valuation norms. Whereas as per methodology 2, FMV is the entire of each financial and non-monetary consideration acquired or accruing on hunch sale. The place the consideration consists of non-monetary consideration as effectively, the honest worth of the belongings which signify the non-monetary consideration is to be decided as per the prescribed tax valuation norms.

The upper of the FMV derived utilizing the above 2 strategies shall be deemed to be the complete worth of consideration for calculating the capital positive factors arising on such hunch sale.

For the reason that greater of the 2 FMVs should be adopted for calculation of capital positive factors and tax thereon, in a case the place, the precise sale consideration is lower than the adjusted guide internet price of the endeavor, the tax will should be computed utilizing the adjusted guide internet price because the consideration quantity.

One other necessary facet to bear in mind is that the modification pertaining to dedication of consideration quantity on hunch sale is relevant retrospectively from FY 20-21. Subsequently, corporations which have undertaken hunch sale transactions in FY 20-21 could have to re-visit and if required re-compute their capital positive factors to find out any further tax legal responsibility that would come up on the hunch sale transactions undertaken by them in FY 20-21.

These new guidelines for figuring out the deemed consideration quantity could have an effect on hunch sale transactions between group entities the place the consideration quantity is both nominal or restricted to the guide worth of the endeavor being transferred.

(Anish Shah is Affiliate Accomplice, M&A Tax and Regulatory Providers at BDO India. Views expressed are creator’s personal.)

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