Understand the concept of the Valuer under the Income Tax in Detail

If you want to hire a valuer under the Income Tax Act as you are planning to perform a valuation for your organisation then you must know about the valuers registered under the Income Tax Act and for this, we have got you covered. Let’s understand how!

Introduction to the Valuer

Section 55A of the Income Tax Act states that if the tax authorities are required to complete the process of the assessment of a taxpayer, they may make a reference to a valuer to value the capital assets of the taxpayer. 

The purpose of this Section is to ensure that the appropriate assessment of the capital assets can be performed for the computation of the capital gains tax. The capital assets include Immovable Property, jewelry, and other assets defined by the Income Tax Act. 

What are the types of Valuers?

The Act specifies two types of the valuers and these are:

• Registered Valuer: The Registered valuers are those valuers that work in their private capacity under a license issued by the Board and recognised by the Income Tax Department. If a registered valuer is working in a private company, then they are called a Private Valuer. The valuations performed by the Private Valuers are not binding upon the tax authorities, but the Assessing cannot ignore their valuations unless the Assessing Officer has approached the Department Valuation Officer for Valuation. 

• Valuation Officer: The Valuation Officers are also known as the Department Valuation Officers and they are recognised and authorsied by the Income Tax Department. If the tax authorities are in agreement of the revaluation of the capital asset of the taxpayer, then in such a circumstance, the tax authorities may request the Valuation Officer to do what is needed. The valuation report prepared by such a Valuation Officer will be considered by the tax authorities. 

What is the need to appoint a Registered Valuer?

• Compliances: The appointment of a Registered Valuer helps in fulfilling all the compliances encapsulated under various rules and regulations, including the Income Tax Act

• Expertness: As it has been discussed in the preceding parts of the Article, the Registered Valuers are such professionals who posses a high degree of expertise in their field and knowledge. They are fully trained to use different valuation techniques and value the assets properly. 

• Independence: The Registered Valuers are independent and impartial and this is why their valuations are trustworthy and unbiased. 

• Recognition: The valuations by a Registered Valuer are considered legal and can be useful for various purposes such as legal proceedings, financial reporting and the assessment of the taxes. 

• Accountability: The Registered Valuers are held accountable for their work by the professional bodies and they are also subject to disciplinary action if they lack in any sense to meet the specified criteria and standards set for them. 

What is the Reason for including the Registered Valuers under the Income -Tax Act? 

• The Registered Valuers ensure that the valuations are being carried in accordance with the defined and recognised valuation methods. 

• They ensure that the valuation is done by complying with the relevant rules and regulations and that the value of the assets is determined correctly. 

• The valuations they derive are of good quality as they are trained and registered with the regulatory bodies.

• The Registered Valuers always keep a record of their valuation and its process and keep it readily available in case it is demanded by the tax authorities, thereby ensuring transparency and accountability. The Valuation reports prepared by them can be used as evidence in the case of tax-related disputes. 

• The inclusion of the Registered Valuers in the process of the valuation under Income Tax helps ensure that the value of the assets is determined accurately. 

• As the Registered Valuers are not connected to any of the parties to the transaction, it is evident that the value of the assets derived by them is based on an independent and unbiased assessment. 

• The Registered Valuers determine the value of the assets, which are based upon the market value, the cost method, the income method or any other method in accordance with the Income Tax Act, Guidelines, and Regulations. 

• The Registered Valuers act as a checker against the undervaluation of the assets, which may result in the loss of the revenue to the government. 

• Lastly, they abide by the regulatory ethics and code of conduct.  

Requirement of the Valuation by a Registered Valuer

The Valuation Reports prepared by the registered valuers are required for the fair and accurate valuation of the assets under the Income Tax Act for the purpose of taxes. The Registered Valuers are: 

• The Registered Valuer should be a qualified and independent trained professional. He is required to be registered with a regulatory body for carrying out the valuation as recognised by the valuation methods. They must possess adequate qualifications and experience and must be registered with the regulatory bodies for the class of the asset that the valuer is valuing. 

•  The Registered Valuer must be required to comply with the ethics and the code of conduct set by the regulatory bodies. 

• The Registered Valuer shall provide an accurate and fair valuation report that complies with the applicable laws of taxation. 

• The Registered Valuers shall keep the records of the valuation process and make them available as and when required by the relevant tax authorities. 

Registration of the Valuers 

The registration of the Valuers, whether it is the Registered Valuer or the Valuation Officer under the Income Tax Act, is governed by Section 34AB as the persons are required to make an application under FORM N by paying the applicable fees to the Chief Commissioner or the Director General for being registered as a valuer under the Section 34AB of the Income Tax Act. 

Declaration by the Valuer 

The Valuers, in order to be registered under this Act, are required to abide by the below-mentioned declarations: 

• The Valuers are required to make an impartial and a true valuation of the assets which they are required to value

• The Valuers are required to furnish a report of their valuation in the prescribed Form 

• The Valuers must charge a fee at such rate so as not to exceed the rates prescribed under the Income Tax Act 

• The Valuer must not undertake valuation of such an asset in which they will be either directly or indirectly associated. 

Qualifications for the Valuers 

The qualifications of the valuers are different as per the different types of the assets and they are bifurcated in such a manner as discussed in the preceding parts of this Article. 

Valuer for the Immovable Properties (other than the Forests, Mines, Quarries, Agricultural Lands, and Planations) 

1. The Valuer must 

• The Valuer must be a graduate in civil engineering, town planning, or architecture from a recognised university.

• The Valuer must be post-graduate in the valuation of the estate from a recognised university.

• The Valuer must possess a qualification recognised by the Central Government for recruitment to superior services or the posts under the Central Government in the field of civil engineering, town planning, or architecture.

A) The Valuer must be a person formerly employed 

• In a post under the Government of India as a Gazetted Officer.

• The Valuer must be in a post under any other employer carrying a remuneration of not less than Rs. 2,000 per month. In any of the above cases, the Valuer must have retired or resigned from employment after providing their service for not less than 10 years as a valuer, architect, or town planner or in the field of designing of structures, construction of buildings and the development of the land 
• The Valuer must be a person formerly employed as a Professor, Reader, Lecturer in the University, College or any other institution preparing the students for a degree in civil engineering, town planning or architecture and must have resigned after having taught for not less than 10 years or retired  OR 

B) The Valuer must have been in practice as a valuer of real estate, consulting engineer, surveyor, or architect for a period not less than 10 years and must have acquired the relevant experience in any of the below-mentioned fields:

• Valuation of Buildings and Urban Lands
• Development of land or Construction of Buildings
• Quantity Surveying in Building Construction
• Structural or Architectural Design of buildings of town planning 

Valuation of the Agricultural Lands 

• The Valuer is required to be a Graduate in Agricultural Science from a recognised university and must have worked as a valuer of the farms for a period not less than 5 years or

• The Valuer must be a person formerly employed in a post under the Government as a Collector, Deputy Collector, Settlement Officer, Land Valuation Officer, Superintendent of Land Records, Agricultural Officer, Registrar under the Registration Act, 1908 and such person must have retired or resigned from such employment after having rendered their services in any one or more of the above-mentioned posts for a total period of 5 years. 

Valuation of Tea Plantation, Coffee Plantation, Rubber Plantation and Cardamom Plantation 

• The Valuer must have, for a period not less than 5 years, acted as a manager or owned a coffee, tea, rubber, or cardamom plantation, having the area of the plantation of not less than 4 hectares in the case of the cardamom plantation and, in any other case, forty hectares. 

• The Valuer must be a person formerly employed in a post under the Government as a Collector, Deputy Collector, Settlement Officer, Land Valuation Officer, Superintendent of Land Records, Agricultural Officer, Registrar under the Registration Act, 1908 and such person must have retired or resigned from such employment after having rendered their services in any one or more of the above-mentioned posts for a total period of 5 years. Out of these 5 years, 3 years must have been in the areas where coffee, rubber, cardamom and tea are extensively grown 

Valuation of Forest 

A Valuer must be a person formerly employed in a post under the Government and such person must have retired or resigned from such employment after having rendered their services for a period of not less than 5 years in a gazetted post that requires special knowledge of forestry. 

Valuation of the Mines and Quarries 

• The Valuer must be a person who graduated in mining from a recognised university or shall possess such qualification recognised by the Central Government for recruitment to superior services or posts under the Central Government in the field of Mining and 

• The Valuer must be a person formerly employed in a post under the Government as a Gazetted Officer or in a post under any other employer that carries a remuneration of not less than Rs. 2,000 per month and such person must have retired or resigned from such employment after having rendered their services as a mining engineer for a total period of not less than 10 years. 

Valuation of Stocks, Debentures, Shares, Securities, Shares in Partnership Firms, Shares in the Assets of the Business including Goodwill 

• The Valuer must be a member of the Institute of Chartered Accountants of India, Institute of Costs and Works Accountants of India, or Institute of Company Secretaries of India 

• The Valuer must have been in practice as a chartered accountant or a Cost and Works accountant or a Company Secretary for a period of not less than 10 years and their gross receipts from such practice should not be less than 50,000 in any 3 of the 5 preceding years. 

• The Valuer must be a person formerly employed in a post under the Government as a Gazetted Officer or in a post under any other employer that carries a remuneration of not less than Rs. 2,000 per month and such person must have retired or resigned from such employment after having rendered their services as an auditor, and taxer for a total period of not less than 10 years. 

• The Valuer must be a person formerly employed as a Company Secretary or a Deputy Company Secretary, or an Assistant Company Secretary or in a post under any other employer that carries a remuneration of not less than Rs. 2,000 per month and such person must have retired or resigned from such employment after having rendered their services as an auditor, and taxer for a total period of not less than 10 years. 

Valuation of the Plant and Machinery 

• The Valuer of the Plant and Machinery must be a graduate in Mechanical or Electrical Engineering from a recognised university 

• The Valuer must possess a post-graduate degree in the valuation of the machinery and plant from a recognised university or 

• The Valuer must possess a qualification recognised by the Central Government for recruitment to superior services or the posts under the Central Government in the field of Electrical and Mechanical Engineering

• The Valuer must be a person formerly employed in a post under the Government as a Gazetted Officer or in a post under any other employer that carries a remuneration of not less than Rs. 2,000 per month and such person must have retired or resigned from such employment after having rendered their services as as electrical or mechanical engineer or valuer of the plant and machinery for a total period of not less than 10 years or 

• The Valuer must be employed formerly as a professor, reader, or lecturer in a university, college or electrical engineering and such person must have retired or resigned from such employment after having taught for not less than 10 years. 

• The Valuer must be in practice as the consulting engineer or the valuer of the machinery and plant for a period of not less than 10 years and such person must have acquired the experience in the valuation of the plant and machinery ad their gross receipts from such practice must not be less than 50,000 in any of the 3 years during the last three years. 

Valuation of Jewellery 

The Valuer of the Jewellery shall be engaged for a period of 5 years as a sole partner or proprietor in a partnership firm that carries the business of the jewellery and the firm is required to have an average annual turnover of not less than 15 Lakhs in the last 3 accounting years immediately preceding the year in which the application to register as a valuer is made. 

Valuation of Artwork 

• The Valuer is required to be specialised by virtue of their professional and academic knowledge in the particular line of the artwork they are seeking to be registered as a Valuer. 

• The Valuer must have served either as the Director General or Superintending Archaeologist of the Archaeological Survey of India, or Director of National Museum, Salar Jung Museum, Prince of Wales Museum, Indian Museum, Asutosh Museum, Madras Museum, Bharat Kala Bhawan, Principal of the Arts Government School, or the member of the Art Purchase Committee of any of the above referred museums. 

Valuer of Life Interest, Reversions and Interest in the Expectancy 

• The Valuer must be required to be a graduate from a recognised university and 

• The Valuer must have been in practice as an actuary under the Insurance Act for a period of not less than 10 years or 

• The person must have rendered their continuous services for a period of not less than 10 years as an actuary under the Government or under the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956 or 
• The person must have practised for an aggregate period of not less than 10 years as an actuary under the Government or under the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956.

Disqualification from being appointed as a Valuer  

Section 8A of the Income Tax Act specifies certain circumstances that can disqualify a person from being registered as a Valuer and these are:

• If the Person has been removed or dismissed from Government Service.

• If the Person is an undischarged Insolvent

• If the Person has been convicted for any offense and sentenced to a term of imprisonment

• If the Person has been convicted of an offence under the Income Tax Act, 1961, or the Gift Tax Act, 1958, or the Wealth Tax Act, 1957 or a penalty has been imposed under the clause (iii) of the sub-section (1) of Section 271 or clause (i) of Section 273 of the Income Tax Act, 1961 or under clause (iii) of sub-section (1) of Section 18 of the Wealth Tax Act or under clause (iii) of sub-section (1) of Section 17 of the Gift Tax Act. 

• If the Person has been found to be guilty of misconduct in the professional capacity in the case where the person is a member of any institution or association or an institution established in India having as its object the supervision, control, regulation or encouragement of the profession of engineering, accountancy, architecture, or company secretaries or such other profession as the Board may specify or 

• In any other case by the Chief Commissioner or the Director General in accordance with the procedure laid down under Rule 8F and Rules 8H to Rule 8K which is in the opinion of the such Chief Commissioner or Director General renders unfit to be registered as a valuer. 

What are the circumstances under which the reference to the Valuation Officer is made?

As we have already discussed, Section 55A and the power of the Assessing officer for the Valuation Report is given to either the Registered Valuer or a Valuing Officer. So, let’s discuss the circumstances under which a reference is made by the Assessing Officer to the Valuation Officer. 

When there is a difference between the Value of the Asset as claimed by the Assesse and the Fair Market Value of the Asset 

If the Assessing Officer is of the opinion that the valuation of the capital asset as claimed by the assesse based on the valuation provided by the registered valuer differs from the Fair Market Value of the asset. 

The difference in the amount is not required to meet any limit as long as the assessing officer is of the opinion that there is a variation in the value of the asset then they may refer to the Valuation Officer, who is the Departmental Valuation Officer. 

The Powers of the Assessing Officer under this Section can be used under the below-mentioned circumstances:

• Section 50C: This Section has been introduced to curb any tax avoidance by the taxpayers upon the sale of the immovable property. Under this Section, the Stamp Valuation Authorities can also provide the valuation that is required to be adopted for the immovable property sale agreement. However, if the taxpayers dispute the valuation, the Assessing Officer is required to refer the valuation to a Valuation Officer. 

• Section 142A:  The Assessing Officer can, for the purpose of either the assessment or reassessment, refer to a Valuation Officer for estimating the value, which includes the fair market value of any property, asset, or investment and is required to also submit a copy of the report to them. 

Other Conditions 

If the above-mentioned circumstances are absent, the Valuation Officer can still make a reference to the Valuation Officer when: 

• If the nature of the asset and the other circumstances warrants so 

• If the fair market value of the asset exceeds the value of the asset as claimed by the taxpayer by such value or percentage as prescribed in this behalf. 

Determining the Cost of Acquisition under Section 55A

• For determining the fair market value of the asset as of the date of 1/4/1981  to 1/4/2006 is to be obtained as the cost of the acquisition for the computation of the capital gains in the hands of the assesses. 

• The fair market value of the shares for the determination of the cost of the acquisition under Section 49(2AA) or Section 49(2AB).

• The fair market value of the asset as considered to be the cost of the acquisition for the purposes of the Income Declaration Scheme, 2016 as per Section 49(5). 

• The fair market value of the asset is to be adopted as the cost of the acquisition, which is to be taken into consideration for the computation of the accreted income on the specified date as referred under Section 115TD (2) and Section 49(8) 

• The fair market value of the asset is to be taken into consideration as the cost of the acquisition on the date when the assets are converted from the stock trade into investment as provided under Section 28(via) as per Section 49(9).

• The fair market value of the asset on the date upon which the previous owner becomes the owner.  

Reference under Section 55A for the Determination of the Fair Market Value Deemed as the Full Value of the Consideration 

• Fair Market Value on the date when the capital assets are received under insurance from the insurer under Section 45(1A)

• Fair Market Value on the date when a capital asset is converted in stock in trade under Section 45(2). 

• Fair Market Value on the date when the capital asset was received by the specified person from the specified entity on the reconstruction as specified under Section 45(4)

• Market Value or the Fair Market Value of the assets as received by the shareholder on the liquidation of the company as required under Section 46(2)

• Fair Market Value of the asset on the date of the transfer, which is deemed as the full value of the consideration under Section 50B(2). 
• Fair Market Value of the asset being either a building or land or both as required under Section 50C(2)

• Fair Market Value of the asset, which is to be treated as the full value of the consideration as required under Section 50D. 

• Fair Market Value of the asset is exchanged with another asset under Section 2(47)

Conclusion 

The Valuer is required to be appointed by the Assessing Officer for the purpose of the valuation of different assets and properties. The Valuer is required to fulfil certain conditions in order to be appointed as the Valuation Officer though certain disqualifications are provided by the Income Tax Act itself which disqualifies certain categories of the persons to be appointed as the Valuation Officer. 

Frequently Asked Questions on the Concept of the Valuer under the Income Tax

Q1. How do I become an Income Tax approved Valuer?

Ans1. A Person in order to become a registered valuer, is required to fulfill the criteria specified under the Insolvency and Bankruptcy Code.

Q2. What is the Valuer fee for Income Tax?

Ans2. The fees of the valuer are dependent upon the assets that are being valued by him. Usually, the fees range from 0.5% to 0.05%. 

Q3. How do I register as a Valuer under Section 34AB?

Ans 3. In order to register oneself under Section 34AB, an application shall be made in FORM N, which shall be accompanied by a fee of Rs. 1000.

Q4. Who is eligible for Registered Valuer?

Ans4. The persons registered under the Member of Institute of Chartered Accontants of India, Member of Institute of Company Secretaries of India, Member of the Institute of Cost Accountants of India, Master of Business Administration, Institution of Estate Managers and Appraisers, Practicing Valuers Association, The Indian Institute of Valuers, etc. 

Q5. Who are Registered Valuers under Income Tax Act?

Ans5. The Valuer is required to be a member of the above-mentioned institutions. 

Q6. What is a Valuation Certificate for Income Tax?

Ans6. A Valuation Certificate is issued by a registered valuer after the conclusion of the valuation process. 

Q7. What are the types of Registered Valuers?

Ans7. The categories of the registered valuers include the valuers for the valuation of immovable properties, forests, coffee plantations, mines and quarries, companies, etc. 

Q8. What is the validity period of valuation?

Ans8. There is no formal period for the valuation report. 

Q9. How is valuation calculated?

Ans9. The valuation is calculated by using the total revenue before deducting the operating expenses and then multiplying it with the multiple of the industry. 

Q10. Is a Valuation fee refundable?

Ans10. No, the valuation fee is non-refundable once the assessment is done and the valuer prepares a valuation report.