Valuation Under Income Tax Act

What is Valuation Under Income Tax Act?

Valuation Under Income Tax Act refers to the determination of the fair market value (FMV) of various assets for the purpose of calculating tax liabilities. The Income Tax Department uses this valuation to assess tax under different scenarios, including capital gains tax, transfer pricing, gift taxation, and scrutiny of undervalued transactions.

The Income Tax Act has specific rules and methods to arrive at the fair market value depending on the type of asset involved. These rules are especially significant in cases of:  watch

• Sale or transfer of immovable property
  
• Issue or transfer of unlisted shares
  
• Gifts or inheritance of assets
  
• Start-up valuation for tax exemptions
  
• Slump sales or business transfers

Why Valuation Matters in Income Tax

Valuation is more than just a number—it affects how much tax you or your business must pay. Here’s why Valuation Under Income Tax Act is important:

• Ensures compliance with tax laws
  
• Prevents underreporting of income or overstatement of expenses
  
• Helps in fair assessment by tax authorities
  
• Aids in smoother mergers, acquisitions, or asset transfers
  
• Reduces litigation risk and penalty exposure