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Tax on sum received on sale of business

Tax planning 646 views 2 replies

Naresh Kumar

Finance

48 Points Joined November 2010

Hello All,

someone known to me is running a recruitment company (pvt. ltd) and is considering to sell the business including transfer of ownership.

Can anyone share their views as to treatment of tax on the proceeds received from such a sale? and any possibilities of tax planning.

Is there any other aspects that need to be considered from taxation point of view.

Also, what will be the business valuation for recruitment company (Example multiples of Income / net profit) etc..

information will be of great use.

thanks.

Replies (2)

Guest

If held for more than one year, LTCG @ 20% will be applicable with indexation benefit. Section 54EC benefit can be taken by investing capital gain in NHAI or RECL Bonds (3 yr lock in) max 50 lakhs within 6 months of transfer of shares in private limited company.

Since it is service business, discounted earnings model can be used, estimate growth rates, risk, determine multiple based on risk. Risk factors are key personnel, disproportionate sales. Strategic buyers deriving synergy from buying your company can realize higher value. Find out portion of earnings which are recurring in nature, staffing or placement business, customer base is diversified, key personnel who generate higher sales.