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IncomeTaxDepartment

Determinationoffairmarketvalue

Determinationoffairmarketvalue.
11UA.7[(1)]Forthepurposesofsection56oftheAct,thefairmarketvalueofaproperty,otherthan
immovableproperty,shallbedeterminedinthefollowingmanner,namely,
(a) valuationofjewellery,
(i) the fair market value of jewellery shall be estimated to be the price which such
jewellerywouldfetchifsoldintheopenmarketonthevaluationdate
(ii) incasethejewelleryisreceivedbythewayofpurchaseonthevaluationdate,from
aregistereddealer,theinvoicevalueofthejewelleryshallbethefairmarketvalue
(iii) incasethejewelleryisreceivedbyanyothermodeandthevalueofthejewellery
exceeds rupees fifty thousand, then assessee may obtain the report of registered
valuer in respect of the price it would fetch if sold in the open market on the
valuationdate
(b) valuationofarchaeologicalcollections,drawings,paintings,sculpturesoranyworkofart,

(i) thefairmarketvalueofarchaeologicalcollections,drawings,paintings,sculptures
or any work of art (hereinafter referred as artistic work) shall be estimated to be
pricewhichitwouldfetchifsoldintheopenmarketonthevaluationdate
(ii) incasetheartisticworkisreceivedbythewayofpurchaseonthevaluationdate,
from a registered dealer, the invoice value of the artistic work shall be the fair
marketvalue
(iii) incasetheartisticworkisreceivedbyanyothermodeandthevalueoftheartistic
work exceeds rupees fifty thousand, then assessee may obtain the report of
registeredvaluerinrespectofthepriceitwouldfetchifsoldintheopenmarketon
thevaluationdate
(c) valuationofsharesandsecurities,
(a) the fair market value of quoted shares and securities shall be determined in the
followingmanner,namely,
(i) if the quoted shares and securities are received by way of transaction
carriedoutthroughanyrecognizedstockexchange,thefairmarketvalue
ofsuchsharesandsecuritiesshallbethetransactionvalueasrecordedin
suchstockexchange
(ii) if such quoted shares and securities are received by way of transaction
carried out other than through any recognized stock exchange, the fair
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marketvalueofsuchsharesandsecuritiesshallbe,
(a) the lowest price of such shares and securities quoted on any
recognizedstockexchangeonthevaluationdate,and
(b) thelowestpriceofsuchsharesandsecuritiesonanyrecognized
stock exchange on a date immediately preceding the valuation
date when such shares andsecurities weretradedon suchstock
exchange,incaseswhereonthevaluationdatethereisnotrading
insuchsharesandsecuritiesonanyrecognizedstockexchange
8[(b) thefairmarketvalueofunquotedequitysharesshallbethevalue,onthevaluation
date, of such unquoted equity shares as determined in the following manner,
namely:
(AL)
thefairmarketvalueofunquotedequityshares=
(PV),
(PE)

where,

A = bookvalueoftheassetsinthebalancesheetasreducedbyanyamountoftax
paidasdeductionorcollectionatsourceorasadvancetaxpaymentasreduced
by the amount of tax claimed as refund under the Incometax Act and any
amountshowninthebalancesheetasassetincludingtheunamortisedamount
ofdeferredexpenditurewhichdoesnotrepresentthevalueofanyasset

(i) thepaidupcapitalinrespectofequityshares
(ii) the amount set apart for payment of dividends on preference
shares and equity shares where such dividends have not been
declaredbeforethedateoftransferatageneralbodymeetingof
thecompany
(iii) reserves and surplus, by whatever name called, even if the
resulting figure is negative, other than those set apart towards
depreciation
(iv) any amount representing provision for taxation, other than
amount of tax paid as deduction or collection at source or as
advancetaxpaymentasreducedbytheamountoftaxclaimedas
refundundertheIncometaxAct,totheextentoftheexcessover
thetaxpayablewithreferencetothebookprofitsinaccordance
withthelawapplicablethereto
(v) anyamountrepresentingprovisionsmadeformeetingliabilities,
otherthanascertainedliabilities
(vi) anyamountrepresentingcontingentliabilitiesotherthanarrears
ofdividendspayableinrespectofcumulativepreferenceshares
PE = totalamountofpaidupequitysharecapitalasshowninthebalancesheet

PV = thepaidupvalueofsuchequityshares]

= book value of liabilities shown in the balancesheet, but not including the
followingamounts,namely:

(c) thefairmarketvalueofunquotedsharesandsecuritiesotherthanequitysharesina
companywhicharenotlistedinanyrecognizedstockexchangeshallbeestimated
tobepriceitwouldfetchifsoldintheopenmarketonthevaluationdateandthe
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assesseemayobtainareportfromamerchantbankeroranaccountantinrespectof
suchvaluation.]
9[(2) Notwithstanding anything contained in subclause (b) of clause (c) of subrule (1), the fair

marketvalueofunquotedequitysharesforthepurposesofsubclause(i)ofclause(a)ofExplanation
to clause (viib) of subsection (2) of section 56 shall be the value, on the valuation date, of such
unquotedequitysharesasdeterminedinthefollowingmannerunderclause(a)orclause(b),atthe
optionoftheassessee,namely:
(a) thefairmarketvalueofunquotedequityshares=

(AL)
(PE)

(PV),

where,

= bookvalueoftheassetsinthebalancesheetasreducedbyanyamountoftaxpaidas
deduction or collection at source or as advance tax payment as reduced by the
amountoftaxclaimedasrefundundertheIncometaxActandanyamountshownin
thebalancesheetasassetincludingtheunamortisedamountofdeferredexpenditure
whichdoesnotrepresentthevalueofanyasset

= bookvalueofliabilitiesshowninthebalancesheet,butnotincludingthefollowing
amounts,namely:
(i) thepaidupcapitalinrespectofequityshares
(ii) the amount set apart for payment of dividends on preference shares and equity
shareswheresuchdividendshavenotbeendeclaredbeforethedateoftransferat
ageneralbodymeetingofthecompany
(iii) reserves and surplus, by whatever name called, even if the resulting figure is
negative,otherthanthosesetaparttowardsdepreciation
(iv) anyamountrepresentingprovisionfortaxation,otherthanamountoftaxpaidas
deduction or collection at source or as advance tax payment as reduced by the
amount of tax claimed as refund under the Incometax Act, to the extent of the
excessoverthetaxpayablewithreferencetothebookprofitsinaccordancewith
thelawapplicablethereto
(v) any amount representing provisions made for meeting liabilities, other than
ascertainedliabilities
(vi) any amount representing contingent liabilities other than arrears of dividends
payableinrespectofcumulativepreferenceshares

PE = totalamountofpaidupequitysharecapitalasshowninthebalancesheet

PV = thepaidupvalueofsuchequitysharesor
(b) thefairmarketvalueoftheunquotedequitysharesdeterminedbyamerchantbankeroran
accountantaspertheDiscountedFreeCashFlowmethod.]

Copyright.TaxmannPublicationsPvt.Ltd.

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