In accordance with provisions of section 50B of Income Tax Act, 1961 Profits or Gains arising in case of any sale of any undertaking of any entity shall be chargeable under the head Capital Gain.
Gain can be Long Term or Short-Term depending upon the holding period of undertaking
- STCG- If less than 36 Months
- LTCG- If more than 36 Months
However, No benefit of Indexation shall be provided in case of LTCG
For computation of Capital Gains Full Value of Consideration shall be FMV, determined as per Rule 11UAE.
Provisions of Rule 11UAE:
There are 2 methods given for computation of FMV, the higher of which shall be considered as Full Value of Consideration.
Just for the sake of understanding, both the methods are similar to methods prescribed in AS-14 (Accounting for Amalgamation) but with certain Income Tax modifications.
Method 1:
1) Book Value of all the assets except (jewellery, artistic work, shares, securities and immovable property)
2) Income tax paid or any deferred revenue expenditure (any unamortized expenditure)
3) The price at which the jewellery and artistic work can be sold in open market subject to valuation report by Registered valuer.
4) FMV of shares and security as determined under Rule 11UA
5) Stamp duty value of Immovable property as determined by any government authority.
6) Book value of all the Liabilities appearing in the books
(Liabilities does not include Equity share capital ,Reserves and Surpluses, Dividend Payable ,Provisions made for liabilities and Contingencies. However Dividend payable to cumulative preference shareholders shall be included)
Formula: FMV1 =1-2+3+4+5-6
Method 2:
FMV2 shall be the total consideration received or receivable as a result of Slump Sale
However before finalising the FMV2, Rule 11UA and Rule 11UAE shall be considered.
The higher of FMV1 or FMV2 shall be considered as Full value of consideration and the cost of acquisition shall be Net worth, computed in accordance with the provisions of Section 50B.
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