How to Value your Business, True Networth?

Need to Value business stems from may reasons namely

  • Seeking funds as Investment
  • Lawsuits and Settling Litigation
  • Inheritance of Property
  • Certification for travel, education or specific purpose

Being a relative complex matter, often the common sense and basic key aspects help decide the variants for estimation

The 3 Widely accepted methods are as below

Market Based Asset Based Income Based
Value of similar business in competition Current Worth of the Assets belonging to the Co. Future Potential of Income @ Business
May or may not be on Projections No Forecast Required Forecast is Must

 

Market-based approach
With this method you:

  1. identify a similar firm (within same or similar industry, same business and markets)
    2. identify the valuation multiple for the business.
    3. Identify the appropriate variable and valuate.Some of the most popular multiples are:

 

  1. A) Price Earnings Multiple is calculated as Share price / Earnings per share (EPS)

EPS is net income/weighted average no of shares in issue

 

EPS may be adjusted to eliminate exceptional items (core EPS) and/or outstanding dilutive elements (fully diluted EPS)

 

Some of the key advantages are

  • Most commonly used equity multiple
  • Data availability is high

 

However, some of the cons are as

  • PS can be due to varying accounting policies and manipulation
  • Unless adjusted, one-off exceptional items does not give comparable valuation
  • Does not work, if earnings are negative

 

  1. Price to Sales ( p/s) is less complex , more linear and often does not require change due to capital restructuring
  2. Price to Book ( P/B) takes into consideration the book value of the company and here income is often directly proportional to Assets
  3. EV/EBITDA: EBITDA, or Earnings Before Interest, Taxes, Depreciation, and Amortisation is widely regarded by analysts as more reliable

It eliminates variation in capital structure, taxes , other income . Enterprise Value is the sum of Debt, Equity & cash balance & Ebidts is Earnings before Interest

START-UP, INCOME TAX, GST, BUSINESS, CA

Asset based approach
The Net Asset Value (NAV) is the easiest to understand. It is calculated simply as fair value of the assets of the business less the exterior liabilities owed. The key is deciding fair value, especially of assets since fair value may change significantly from acquisition value (for non-depreciating assets) and recorded value (for downgrading assets).

 

Also, the true value of your business may be significantly more than the simple addition of Possessions.. Things which you never taken care of may form part of the value, as would an unique way of doing business that gives your enterprise an benefit. An extension of NAV Method – the Replacement Cost Method – takes treatment of many of these issues. Set simply, it is the value any objective person would pay to arranged up a business that is precisely the same.

 

Income based approach
This method generally involves calculating the significance of the company using Cheaper Cashflow (DCF). In brief and very simply, this means calculating the present value of the future cash flows of the company. The discounting to provide value is done using the cost of capital of the company. Depending on goal, cash flows to the firm (that is, before debt obligations) or cash flows to shareholders may be used. It will create an Enterprise Value (value of financial debt + value of equity) and these Equity Worth.

 

With limited information, some of the key drivers are

 

  1. Data Availability
  2. Appropriateness of the method to the situation, industry, and the business
  3. Desired Level of Details as per Requirement

Valuation under multiple methods is average of final valuations to get more accurate figues

Principles of invariably, intuition, common sense, and acceptability will trump complexity, high math, and copious data for getting the TRUE NETWORTH.

Missed filing tax return (ITR) for FY 2016-17? Here’s what you should do!

Individuals with income more than basic tax exemption limit are mandatorily required to file their tax return, under the Income Tax Act. The due date for filing tax return for the immediate past Financial Year was July 31 each year.

However, tax return can also be filed after the above due date as “Belated tax return”.

Income Tax Returns for FY 2016-17 – New Change

However, the Finance Act, 2016, has stipulated that belated returns can be filed within one year from the end of relevant assessment year (AY) or the completion of the assessment, whichever is earlier. So, for the Financial Year (FY) 2016-17 (Assessment Year 2017-18), the due date for a belated return is March 31, 2018, which is just gone by now.

What should you do if you have still not filed your returns for 2016-17 and what consequences you might face if returns have not been filed?

Non Filing within Due Date – Possible Impact

=> Interest of 1% on the balance tax payable for each month of delay in filing a tax return.

=> From FY 2017-18 onward, in case return is not filed within the due date, a fee of Rs 5,000 is applicable

=> If it is delayed beyond December 31, of the relevant assessment year then it is Rs 10,000.

However, this will be restricted to Rs 1000 in case of individuals with income up to Rs 500,000;

=> Assessee will lose the ability to carry forward any eligible losses;

=> Will also lose out on claiming a refund of any excess taxes paid and consequential interest;

=> In case of failure to file a tax return from FY 2016-17 onward, a penalty of 50% of tax payable (as under-reported income) is applicable;

=> There may be penalties under the Black Money Act for an individual who is ordinarily resident and has/had foreign income/ asset;

=> In case of serious willful attempt to evade taxes, rigorous imprisonment may be considered by the tax authorities which may extend to 7 years;

Apart from the above, the tax return may also be required as documentary evidence for any application for visas or for loans, etc.ca, income tax , gst, auditors

Steps to be Taken

While one should endeavor to file a tax return within the due dates, the applicable taxes should definitely be deposited into government treasury along with applicable interest if the return has not been filed for any reason.Such payment should be communicated to the jurisdictional tax officer by filing a letter along with tax paid challan.

In an event where it is noticed by tax authorities that the individual has not filed the tax return, but applicable taxes are already paid by way of tax deduction at source, advance tax or self-assessment tax,

Revenue Authorities may choose to not to levy penalty (as indicated earlier, fee for delay in filing tax returns from FY 2017-18 would still be applicable).

Certain types of income on which tax may not be deducted at source, include, say, interest from savings bank accounts. In such cases, one must remember to pay the applicable taxes and inform authorities.

Also, in case you have paid excess tax and also have carry-forward of losses, it is possible to approach tax authorities with an application for condonation of delay, subject to certain conditions.

This can be possible only if robust documentation can be provided to support the tax payment claims and also to demonstrate that there was a reasonable cause due to which the return could not be filed within the due date.

10 Income Tax Rules That Will Change From April 1

? Rs 40,000 standard deduction introduced: This additional deduction has been proposed in place of existing deductions of Rs. 19,200 for transport allowance and Rs. 15,000 for medical reimbursement.

This will benefit 2.5 crore salaried employees. Pensioners, who normally do not enjoy any allowance for transport and medical expenses, will also benefit from it.

After the introduction of standard deduction, the salaried class will enjoy a flat deduction of Rs 40,000 from their taxable income. Standard deduction was earlier available for salaried individuals previously, till it was abolished with effect from assessment year 2006-07.  The benefits arising from standard deduction depends on the tax bracket a salaried individual falls in.

? Higher cess: The finance minister also raised cess on income tax to 4 per cent from 3 per cent for individual taxpayers on the amount of income tax payable.

? Introduction of long-term capital gains tax on equity investments:  A new 10 per cent tax (cess extra) will be applicable on capital gains exceeding Rs 1,00,000 upon sale of equity share or units of equity oriented funds. However, for the benefit of tax payers, the gains till January 31, 2018, are being grandfathered. This means that only gains over January 31, 2018, prices will be taxed.

? Tax on dividend income from equity mutual funds:  A tax at the rate of 10 per cent will be levied on dividend distributed by equity-oriented mutual funds.

? More income tax benefits on single premium health insurance policies: Health insurers typically provide some discount if you pay premium for a few years upfront. But earlier, an individual could claim deduction only up to Rs. 25,000.

Under the proposed changes in Budget 2018, in case of single premium health insurance policies having cover of more than one year, deduction will be allowed on a proportionate basis for the number of years for which health insurance cover is provided, subject to the specified limit. For example, your insurer is offering a 10 per cent discount on health insurance premium if you pay Rs. 40,000 for the two-year cover. Under the proposed changes, the individual can claim Rs. 20,000 in both years.

? Income tax benefit on NPS withdrawal: The government has proposed an extension to the benefit of tax-free withdrawal from NPS (National Pension System) to non-employee subscribers.

Currently, an employee contributing to the NPS is allowed an exemption in respect of 40 per cent of the total amount payable to him or her on closure of account or on opting out. This exemption is currently not available to non-employee subscribers. The extension of tax-free withdrawal to non-employee subscribers will be available from financial year 2018-19.

EMPOWERING SENIOR CITIZENS

? Deduction in respect of interest income to senior citizens:

Senior citizens will get higher interest income exemption limit on deposits in banks and post offices, including recurring deposits.  Currently, a deduction up to Rs 10,000 is allowed under Section 80TTA of the Income Tax Act to an individual in respect of interest income from a savings account.

Under the tax laws, a new Section 80TTB is proposed to be inserted to allow a deduction up to Rs 50,000 in respect of interest income from deposits held by senior citizens. However, no deduction under Section 80TTA shall be allowed for senior citizens.

The government also proposed to increase the investment limit in Pradhan Mantri Vaya Vandana Yojana or PMVVY to Rs. 15 lakh from Rs. 7.5 lakh. It also proposed to extend the Pradhan Mantri Vaya Vandana (PMVVY) scheme till March 2020. Pradhan Mantri Vaya Vandana Yojana, a scheme meant for senior citizens, offers a guaranteed interest rate of 8 per cent.

? Higher TDS or tax deducted limit for senior citizens: The threshold for deduction of tax at source on interest income for senior citizens is proposed to be hiked from Rs 10,000 to Rs 50,000.

? Higher deduction limit under Section 80D of the Income Tax Act for senior citizens: In Budget 2018, the government proposes to increase the deduction for senior citizens on payment of health insurance premiums. The limit is set to go up from Rs 30,000 Rs 50,000. For individuals below 60 years of age, the deduction under Section 80D continues to be Rs 25,000. But if their parents are senior citizens, above 60 years, they can claim an additional deduction of up to Rs 50,000-taking the total deduction to Rs 75,000 (Rs 25,000 + Rs 50,000), higher than the current limit of Rs 55,000.

? Higher income tax deduction for senior citizens for medical treatment of specified diseases:  The deduction available payment towards medical treatment of specified disease is proposed to be hiked to Rs 1 lakh for very senior citizen (earlier Rs 80,000) and senior citizen (earlier Rs 60,000).