The Central Board of Direct Taxes (CBDT) on 30 June 2016 notified rules for calculating Fair Market Value (FMV) of assets located in India with regard to indirect transfer provisions as prescribed in Section 9(1) of the Income-tax Act, 1961. Under section 9 of the Income-tax Act, 1961, any income arising from transfer of any share of or interest in a foreign company or entity that derives its valuesubstantially from the assets located in India, is deemed to accrue or arise in India.
Purpose behind drafting the Rules for calculating Fair market value of Assets
• Manner of computation of FMV of Indian and global assets of the foreign company or entity
• Determination of income attributable to assets situated in India, and
• Information required to be maintained and furnished by the Indian concern under section 285 of Income-tax Act, 1961
Highlights of the Rules
• The Fair Market Value of listed companies will be computed on the basis of a formula taking into account its market capitalisation, book value of liabilities and total number of shares.
• In case of an unlisted company, the FMV would be determined by a merchant banker or accountant as per internationally accepted valuation methodology.
• In case the shares are listed on more than one recognised stock exchange, the price will be computed with reference to recognised stock exchange which records the highest volume of trading in share.
• The share or interest is said to derive it value substantially from assets located in India, if FMV of assets located in India comprise at least 50 percent of FMV of total assets of the company or entity.
• A share or interest is to be deemed to derive value substantially from assets located in India, if the FMV of the Indian asset is more than 10 crore rupees.
These above rules will be applicable from the date of publication in the Official Gazette of the CBDT.