21 February, 2017

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What is BitCoins - Mining, Trading and Methods

What is BitCoins - Mining, Trading and Methods
Introduction
Bitcoin is a cryptocurrency and a payment systems invented by an unidentified programmer, or group of programmers, under the name of Satoshi Nakamoto. Bitcoin was introduced on 31 October 2008 to a cryptography mailing list  and released as open source software in 2009.
There have been various claims and speculation concerning the identity of Nakamoto, none of which are confirmed. The system is Peer to Peer and transactions take place between users directly, without an intermediary. From a user perspective, Bitcoin is pretty much like cash for the Internet.



How Does Bitcoins Works?

A user perspective, Bitcoin is nothing more than a mobile app or computer program that provides a personal Bitcoin wallet and allows a user to send and receive bitcoins with them. This is how Bitcoin works for most users.
Behind the scenes, the Bitcoin network is sharing a public ledger called the "block chain". This ledger contains every transaction ever processed, allowing a user's computer to verify the validity of each transaction. The authenticity of each transaction is protected by digital signatures corresponding to the sending addresses, allowing all users to have full control over sending bitcoins from their own Bitcoin addresses. In addition, anyone can process transactions using the computing power of specialized hardware and earn a reward in bitcoins for this service. This is often called "mining".

Usage of Bitcoins
Yes. There is a growing number of businesses and individuals using Bitcoin. This includes brick and mortar businesses like restaurants, apartments, law firms, and popular online services such as Namecheap, WordPress, and Reddit. While Bitcoin remains a relatively new phenomenon, it is growing fast. At the end of August 2013, the value of all bitcoins in circulations exceeded US$ 1.5 billion with millions of dollars worth of bitcoins exchanged daily.
Currently, a single Bitcoins is worth around INR 73,000/- ($ 1,088). As of February 2016, there are 15.2 million bitcoins circulation of a capped total of 21 million. That means over 72% of all bitcoins are already in circulation.

How can one acquire Bitcoins?
  1. In form of consideration for Goods & Services.
  2. Purchase Bitcoins at a Bitcoin Exchange.
  3. Exchange bitcoins with someone near you.
  4. Earn  Bitcoins through competitive mining
What are the advantages of Bitcoin?
  1. Payment freedom - It is possible to send and receive bitcoins anywhere in the world at any time. No bank holidays. No borders. No bureaucracy. Bitcoin allows its users to be in full control of their money.
  2. Choose your own fees - There is no fee to receive bitcoins, and many wallets let you control how large a fee to pay when spending. Higher fees can encourage faster confirmation of your transactions. Fees are unrelated to the amount transferred, so it's possible to send 100,000 bitcoins for the same fee it costs to send 1 bitcoin. Additionally, merchant processors exist to assist merchants in processing transactions, converting bitcoins to fiat currency and depositing funds directly into merchants' bank accounts daily. As these services are based on Bitcoin, they can be offered for much lower fees than with PayPal or credit card networks.
  3. Fewer risks for merchants - Bitcoin transactions are secure, irreversible, and do not contain customers’ sensitive or personal information. This protects merchants from losses caused by fraud or fraudulent chargebacks, and there is no need for PCI compliance. Merchants can easily expand to new markets where either credit cards are not available or fraud rates are unacceptably high. The net results are lower fees, larger markets, and fewer administrative costs.
  4. Security and control - Bitcoin users are in full control of their transactions; it is impossible for merchants to force unwanted or unnoticed charges as can happen with other payment methods. Bitcoin payments can be made without personal information tied to the transaction. This offers strong protection against identity theft. Bitcoin users can also protect their money with backup and encryption.
  5. Transparent and neutral - All Information concerning the Bitcoin money supply itself is readily available on the block chain for anybody to verify and use in real-time. No individual or organization can control or manipulate the Bitcoin protocol because it is cryptographically secure. This allows the core of Bitcoin to be trusted for being completely neutral, transparent and predictable.
What are the disadvantages of Bitcoin?
  1. Degree of acceptance - Many people are still unaware of Bitcoin. Every day, more businesses accept bitcoins because they want the advantages of doing so, but the list remains small and still needs to grow in order to benefit from networks effects.
  2. Volatility – The total value of bitcoins in circulation and the number of businesses using Bitcoin are still very small compared to what they could be. Therefore, relatively small events, trades, or business activities can significantly affect the price. In theory, this volatility will decrease as Bitcoin markets and the technology matures. Never before has the world seen a start-up currency, so it is truly difficult (and exciting) to imagine how it will play out.
  3. Ongoing development - Bitcoin software is still in beta with many incomplete features in active development. New tools, features, and services are being developed to make Bitcoin more secure and accessible to the masses. Some of these are still not ready for everyone. Most Bitcoin businesses are new and still offer no insurance. In general, Bitcoin is still in the process of maturing.
Is it Virtual or immaterial?
Bitcoin is as virtual as the credit cards and online banking networks people use everyday. Bitcoin can be used to pay online and in physical stores just like any other form of money. Bitcoins can also be exchanged in physical form such as the Casascius coins, but paying with a mobile phone usually remains more convenient. Bitcoin balances are stored in a large distributed network, and they cannot be fraudulently altered by anybody. In other words, Bitcoin users have exclusive control over their funds and bitcoins cannot vanish just because they are virtual.
How Bitcoin Mining works?
Where do bitcoins come from? With paper money, a government decides when to print and distribute money. Bitcoin doesn't have a central government.
With Bitcoin, miners use special software to solve math problems and are issued a certain number of bitcoins in exchange. This provides a smart way to issue the currency and also creates an incentive for more people to mine.

No doubt that the bitcoins is the next big thing for making payments virtually. With Indian Government’s schemes of Digital & Cashless India, it is not yet popular in India as compared to US, China and other part of the worlds.
Digital India and Cashless payments apart, if you are looking for investing your money, Bitcoins are no doubt, one of the most profitable bet for any investor. According to an article of Bloomberg in August 2016, 29 years old, Beijing based programmers got 700% returns.


11 February, 2017

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FAQs on Cash Transaction 2016

FAQs on Viewing Information under Cash Transaction 2016

1. Which internet browser should I use to view and file response on e-filing portal?
Ans: The e-filing portal and other utilities can be best viewed on Internet Explorer 9 or above and latest version of browsers like Mozilla and Chrome.
2. How to register on e-filing website?
Ans: Please click on “Register Yourself” on the e-filing portal and select your user type. Once user type is selected, all the mandatory fields are to be filled up and after a successful registration, you can login.
3. What information do I need to register myself on e-filing portal?
Ans: The basic information required is: PAN, Full Name, Date of birth/incorporation, communication address, valid e-mail id, mobile number and digital signature certificate (if applicable). For persons other than individuals, in addition to the above mentioned information, PAN details and contact details of the principal contact are required.
4. Is it necessary to register on e-filing website? What happens if I don’t register”
Ans: The registration is required only once and without registration, income tax return cannot be filed by user. Also, additional services like viewing 26AS statements, status of income tax return, rectifications, refund re-issue request etc. can’t be availed. In addition to that, e-filing portal is one of the very convenient mediums to communicate with income tax department. Further, you will be able to view cash transactions/cash deposits made by you during demonetization period (9th November, 2016 to 30th December, 2016), if any, only after registration. Response can be submitted online without the requirement of physical contact or visit to Income Tax Office.
5. I am not able to view any information in my e-filing account. What should I do?
Ans: The information on the online portal is dynamic and will be updated on receipt of new information, response and data analytics. You should verify and update the email address and mobile number on the e-filing portal to receive electronic communication.

FAQs on Confirmation of Account under Cash Transaction 2016

6. If the information displayed under “cash transactions 2016” does not belong to me, what should I do?
Ans: In that case, you can select the response “The account does not relate to this PAN” and click on submit button. Your feedback will be sent to the information source for confirmation.
7. If the account displayed does not belong to me, but it belongs to either my spouse or dependent person/relative, what should I do?
Ans: In such case, you can select the response “The account does not relate to this PAN” and click on submit button. Your feedback will be sent to the information source for confirmation.
8. If the account displayed does not belong to me, but it belongs to another entity of which I am authorised signatory, what should I do?
Ans: In such case, you can select the response “The account does not relate to this PAN” and click on submit button. Your feedback will be sent to the information source for confirmation.
9. A am getting error message “invalid field response bank transaction confirmed” while submitting response, what should I do?
Ans: This problem is generally faced while using older version of Internet browser(s). Kindly use Internet Explorer 9 or above or latest version of browsers like Mozilla and Chrome.
10. If I have another account in a bank not being displayed in which I have deposited specified bank notes (SBN), how do I provide information about such account?
Ans: Once you click on cash transaction 2016, details of account(s) with cash deposit are displayed. There is an option provided to submit details of other bank accounts in which specified bank notes (SBN) have been deposited.

FAQs on Modification of Cash Deposit Amount under Cash Transaction 2016

11. If the cash deposit amount displayed is not correct, how do I mention the correct amount?
Ans: If the cash deposit amount displayed is not correct, please mention the correct amount under A.5. Such cases may be sent to the information source for confirmation.
12. Whether the cash deposits consist of specified bank notes only or other currency including new currency notes?
Ans: The cash deposit amount includes both specified bank notes as well as other currency including new currency notes irrespective of the denomination.
13. If one bank account pertaining to me is reported more than once on e-filing portal, how should I submit my response?
Ans: If one bank account is reported more than once, the details for one account may be submitted and an amount of zero can be mentioned in the amount column of the repeated account and the remarks “duplicate bank account” may be entered in the remark column.

FAQs on Explanations of Source of Cash Deposits under Cash Transaction 2016

14. If the cash deposited is from more than one category, how should it be segregated?
Ans: If cash is from more than one category, the source of cash may be assigned under various categories in the following sequence:
a) Cash withdrawn out of bank account (Refer B.3)
b) Cash received from identifiable persons (with PAN) (Refer B.4)
c) Cash received from identifiable persons (without PAN) (Refer B.5)
d) Cash received from un-identifiable persons (Refer B.6)
e) Cash out of receipts exempt from tax (Refer B.2)
f) Cash out of earlier income or savings (Refer B.1)
g) Cash Disclosed/To be disclosed under PMGKY (Refer B.7)
Adopting other sequence may result in case being selected for verification based on risk criteria.
15. If the cash deposit is out of cash in hand as on 8th November 2016, where do I enter that?
Ans: If cash is claimed to be out of cash in hand, the source of cash may be assigned under various categories in the following sequence:
a) Cash withdrawn out of bank account (Refer B.3)
b) Cash received from identifiable persons (with PAN) (Refer B.4)
c) Cash received from identifiable persons (without PAN) (Refer B.5)
d) Cash received from un-identifiable persons (Refer B.6)
e) Cash out of receipts exempt from tax (Refer B.2)
f) Cash out of earlier income or savings (Refer B.1)
g) Cash Disclosed/To be disclosed under PMGKY (Refer B.7)
Adopting other sequence may result in case being selected for verification based on risk criteria.
16 What am T expected to ahem/ under cash out nf earlier income or savings?
Ans: In case of an individual having no business income, cash out of earlier income or savings means cash out of savings as on 8th November 2016. In case of business, the cash in hand as on 31st March 2016 can be taken as cash out of earlier income or savings.
17. If the deposited cash amount pertains to the withdrawals made from different bank accounts, do I need to mention the date(s) of such withdrawal(s)?
Ans: The dates and other details with respect to withdrawal(s) from other bank accounts can be mentioned in the remarks column of B.3.
18 What am I expected to show under cash out of receipts exempt from tax?
Ans: Cash out of receipts exempt from tax is expected to be used for taxpayers not involved in business who have received cash out of exempt income , for example agricultural income etc.
19. I am an entity whose income is exempt under income-tax Act, 1961 e.g. charitable trust etc., how do I assign it under the various categories?
Ans: If the cash pertains to receipts/donations, the source of cash may be assigned under various categories in the following sequence.
a) Cash withdrawn out of bank account (Refer B.3)
b) Cash received from identifiable persons (with PAN) (Refer B.4)
c) Cash received from identifiable persons (without PAN) (Refer B.5)
d) Cash received from un-identifiable persons (Refer B.6)
a) Cash out of earlier income or savings (Refer B.1) – closing cash balance as on 31st March 2016
The taxpayer is advised to provide the details of identifiable person (with PAN) to reduce the chances of the case being selected for verification. Adopting other sequence may result in case being selected for verification based on risk criteria.
20. If the cash is out of cash sales of business, how dot assign it under the various categories?
Ans: If the cash is out of cash sales of business, the cash may be assigned under various categories in the following sequence:
b) Cash received from identifiable persons (with PAN) (Refer B.4)
c) Cash received from identifiable persons (without PAN) (Refer B.5)
d) Cash received from un-identifiable persons (Refer B.6)
e) Cash out of earlier income or savings (Refer B.1) – closing cash balance as on 31st March 2016
The taxpayer is advised to provide the details of identifiable person (with PAN) to reduce the chances of the case being selected for verification. Adopting other sequence may result in case being selected for verification based on risk criteria.
21. I am an entity like Petrol pumps/Toll Plaza/Hospital etc. which was allowed to accept specified bank notes. How should I show the cash deposited in the response option?
Ans: The details of cash sales of business may be provided as mentioned above. The nature of business will be considered while assessing the response.
22. I am a professional having cash receipts on daily basis in the ordinary course of the business. How should I show the cash deposited in the response option?
Ans: If the cash is out of professional receipt in cash, the cash may be assigned under various categories in the following sequence:
a) Cash received from identifiable persons (with PAN) (Refer B.4)
b) Cash received from identifiable persons (without PAN) (Refer B.5)
c) Cash received from un-identifiable persons (Refer B.6)
The taxpayer is advised to provide the details of identifiable person (with PAN) to reduce the chances of the case being selected for verification. In case of cash receipts of Rs. 20,000/- or more from a single person, it is expected that the details are provided either in B.4 or B.5, as the case may be.
23. If income is received from tuition fees, tailoring etc. where should I show the same?
Ans: If the income or cash receipts pertain to the business/profession of the tax payer, the same is to be reported as ‘cash sales’ under ‘Nature of Transaction’. The cash may be assigned under various categories in the sequence of B.4, B.5 or B.6, as the case may be.
24. If I have received cash vide gift/donation, where should I show the same?
Ans: Cash receipts from gifts/donations should necessarily be filled in row B.4, B.5 or B.6 accordingly in the response option form. The taxpayer is advised to provide the details of identifiable person (with PAN) to reduce the chances of the case being selected for verification. In case of cash receipts of Rs. 20,000/- or more from a single person, it is expected that the details are provided either in B.4 or B.5 as the case may be.
25. If I have received salary/ advance salary from my employer in cash and deposited the same in my bank account, where should I show the same in the response form?
Ans: In this case, the name and respective details of the employer from whom salary/advance salary in cash has been received may be provided in B.4 or B.5 of the response form on e-filing portal.
26. If I have deposited someone else’s cash in my bank account, where should I disclose such cash amount in the response form’
Ans: In this case, the name and respective details of the person to whom cash belongs must be provided in row B.4 or B.5 of the response form on e-filing portal.
27. The account number against my PAN On e-fling portal belongs to me, but the cash amount shown was not deposited by me and I have no idea who deposited the each in my hank account. What should I do?
Ans: In this case, the cash may be mentioned under B.6 i.e. cash received from un­identifiable persons and the facts may be provided in the remarks column.
28. If the cash deposited has already been declared under Income Declaration Scheme, 2016, what should I do?
Ans: The cash deposited should be shown under “Cash out of earlier income or savings” (B.1). In remarks column, the details regarding the declaration should be mentioned.
29. If certain amount has been declared or is to be declared under PMGKY and same has been provided in the response, how should I proceed?
Ans: You need to enter the amount which either has been declared or is to be declared under PMGKY, 2016 in row B.7 of the response form. Please refer to guidelines and procedures provided on e-filing portal regarding PMGKY 2016 for further clarifications.

FAQs on Uploading data using CSV under Cash Transaction 2016 

30. How can I provide details of identifiable persons (with or without PAN) from whom cash has been received?
Ans: The details of identifiable persons (with or without PAN) from whom cash has been received can be provided on the online portal. A facility has also been provided to enable upload of the details in a CSV (Comma Separate Values) file.
31. 1 am getting error while uploading the CSV file in the e-filing portal, what should I do?
Ans: Please make sure that you have saved the details in .csv format only before uploading the same. Also, please make sure that you have filled all the mandatory details as provided in the user guide and there are no blank rows in the CSV file. Kindly refer to Para 5.4 of User Guide for Online Verification of Cash deposits during 9th November to 30th December, 2016.

FAQs on Revision of Response under Cash Transaction 2016 

32. After submission, if I want to modify or change my response or explanation provided, how can I do so?
Ans: You can re-submit your response.

FAQs on Verification of Response under Cash Transaction 2016 

33 Whether all cases will be selected for verification?
Ans: No. Data analytics will be used to select cases for verification, based on approved risk criteria.
34. Is response provided by me final or do need to file additional information to support the claim?
Ans: You may need to provide additional information if your case is selected for further verification.
35. If any additional information is required, how shall I be intimated?
Ans: If the case is selected for verification, the request for additional information will be displayed on your e-filing portal and a communication will be sent to your e-mail id, as provided on e-filing portal.

08 February, 2017

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How to Start Construction Project Management Consultancy?

How to Start Construction Project Management Consultancy?
Construction project management (hereinafter called as CM) is a professional service that uses specialized, project management techniques to oversee the planning, design, and construction of a project, from its beginning to its end. The purpose of CM is to control a project's time, cost and quality.

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Whether an owner, contractor or investor, constructor need to deal with a range of requirements during every phase of your construction project. The project management services provide contractor with comprehensive supervision, inspection and commissioning services for all types of projects – no matter the size or location.
The market for construction project management services is huge and includes residential and commercial construction projects. However, due to the nature of the construction industry, you would be well advised to specialize or focus on either residential or commercial construction project management.
Following are some major points of attention to start construction management business:
Legal structure of business: The initial step while starting any business is to choose legal structure of business entity. You could choose any one of them. These options are:
  1. Sole proprietorship
  2. Partnership firm
  3. Limited liability partnership firm
  4. One Person Company
  5. Private limited company
At initial stage if you are solely interested in starting a business sole proprietorship is better option. If some of your friends are also interested in this business then partnership or limited liability partnership would be better.
If you want to expand your business or start with high amount of capital than One Person Company or Private limited company would be better option.
Registration under service tax:  CM is kind of management consultancy which fall under purview of consultancy services in service tax. Hence registration under service tax is required. However service tax general notification is applicable on this services under Notification No 33/2012-ST, dated 20.06.2012 – Exemption to Small service providers having taxable turnover of less than 10 Lakhs and providing services other than by way of under a brand name.
Obtain the Necessary Permits and Licenses for Your Business: Find out what licenses and permits you will need. You will need to take care of this on federal, state, and local levels. In construction, there can be a lot of these, so run your list by an attorney and make sure you are not missing anything.
Choose location for your business: Decide how to best serve the clients you want to reach. Be accessible. Where you set up shop will determine how well you are able to do that.
Develop a good business plan: Business plan is required because of two reasons firstly, because it help in requirement of funds. Secondly, construction management is a broad description. You need to narrow it down. Do you plan to do residential or commercial construction? Will you specialize in new construction, or will you focus on improvements, and additions? With the right roadmap comes the right focus.   
Secure the Proper Finance: You will need to secure loans, find investors, or apply for grants to get your business off the ground. Real estate industry is one of the most risky business fields. CM is associated to real estate development so it needs to plan finance structure for your business carefully.
Understand Your Responsibilities as an Employer: This term seems to be so unimportant but it is most important term in CM business. Because each state has specific legal steps that you will need to take when dealing with employees. A clear understanding of these procedures will help you avoid legal entanglements down the line, both in terms of whom you hire and, unfortunately, whom you fire.
How to obtain construction management project
The project owner will share project information to a large group of contractors, general contractors or subcontractors to solicit bids. The process starts with a cost estimate from blueprints and material take-offs, telling the owner how much money he or she should expect to pay in order for the contractor to complete the project.
There are two kinds of bids:
Open bid: Used for public projects and usually promoted with advertising, an open bid invites all contractors to submit their bid.
Closed bid: Reserved for private projects, a closed bid is when the owner sends invitations to a select number of contractors so only they are able to submit a bid.
Then, once the owner receives all the bids for the project, he or she can select the contractor through a number of ways:

Low-bid selection: This method focuses on the project’s price. Contractors submit their bids with the lowest price they would complete the project for, and the owner chooses the contractor with the lowest one.
Qualifications-based selection: This selection method picks a contractor solely based on qualifications. The owner will ask for a request for qualifications (RFQ), which gives an overview of each contractor’s experience, management plans, project organization, and budget and schedule performance.
Best-value selection: By combining both price and qualifications, the owner looks for the contractor with the best cost and best skill set.  
And finally, once the owner chooses a contractor, there are four different kinds of payment contracts they can agree upon:
Lump sum: A lump sum contract is the most common. The contractor and owner agree on the overall cost of the project and the owner is required to pay that amount whether or not the project fails, or if it exceeds the initial price.
Cost-plus-fee: The owner pays the total cost and a fixed fee percentage of the total cost to the contractor. This is the most beneficial contract for the contractor, since any additional costs will be covered.
Guaranteed maximum price: The guaranteed maximum price contract is the same as the cost-plus-fee, except there is a set price so the total cost and fee cannot exceed.
Unit price: This contract is chosen when both parties are unable to determine the cost ahead of time. The owner provides specific unit price to limit spending.
Construction project management combines the responsibilities of a traditional project manager with the skills and expertise of the construction industry. Because construction projects are always changing, a successful construction project manager needs a wide range of skills and abilities to manage diverse teams and projects.

So, construction project management consultancy great business idea.

05 February, 2017

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How to Start Valuation of Real Estate?

How to Start Valuation of Real Estate?
Real estate appraisal, property valuation or land valuation is the process of developing an opinion of value for real property (usually market value).
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The methods are used for assessing the Market Value of either a single or multiple legal interests in a specific parcel of real estate, which is transferrable freely in an open market within a given set of parameters. The nature of those legal rights will vary from state to state, but can normally be classified as:
  1. The right to own and occupy which includes the right to lease, trade and use the real estate any way permissible within the laws of that state; and
  2. The lesser right to occupy and use only as specified by the owner (as defined above), and which is also permissible within the law of that state.
As per the International Valuation Standards (IVS) definition of Market Value –“ The estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion”.
Market Value is not intrinsic – it arises out of the utility the property offers. Value will vary over time and from place to place according to:
  1. Competitive demands for ownership that exists at a given point in time;
  2. Utility that each buyer perceives the real estate can offer;
  3. Availability of other comparable parcels of real estate; and
  4. Effective finances (levels of monetary wealth) that need to be exist to achieve a purchase.
The market-based methods of valuation generally used globally are:
  1. The sales comparison approach;
  2. The income capitalisation approach; and
  3. The cost approach
Two other methods may be used:
    1. The profits approach; and
    2. The land residual approach
These methods ignore certain factors like the time value of money. Since the effect of these factors on Market Values is significant in emerging markets such as India, the use of these methods is not recommended.
The detail discussions on these methods are as follows:
The Sale Comparison Method
IVS (2007) describes valuation by comparison as a process of identifying similar or substitute properties that have been sold, analysing the sale prices achieved and the relevant market data, and establishing value by comparison with those properties that have been sold. Listings and offerings may also be used as secondary evidence after accounting for a listing discount, particularly in markets where the transaction data may not be readily available.
Where the transaction is through a trader broker, both a ‘sale’ and ‘buy’ figure may be quoted. Market Value for valuation purposes is often taken at the midpoint.
The Income Capitalisation Approach
The income method is used in those markets where buyers are acquiring the right to enjoy future benefits from the asset and where those benefits can be readily expressed in monetary terms. Typically in investment markets, buyers are looking for future income, future value growth or a combination thereof. The income method is used in the bond market, equity share market and real estate market, or where it is possible to assess the relationship between price paid by buyers and the expected income to be derived from ownership. In its simplest form, the relationship is expressed as a multiplier or a yield rate, but becomes more complex where there is a variable income expected and where that income may be time constrained.
Income capitalisation requires two inputs: income and multiplier or yield. In some market sit is the gross income that is capitalised, but the preferred approach is to capitalise the Net Operating Income (NOI) before taxation.
The basis on which tenants occupy property varies from state to state, and sometimes between property types and from one property to another. It is important to identify who is responsible for:
  1. Building repairs and maintenance;
  2. Building insurances (where applicable) for fire, flood and other losses;
  3. Annual operating expenses for heating, lighting,cleaning, etc.;
  4. Availability and price of parking slots;
  5. Annual taxes payable on the building (this excludes ownership taxes such as wealth taxes); and
  6. Management expenses in the collection of rent and management of the space for the tenants.
The Cost Method
Where a market exists for a residential, retail, commercial and industrial property, there should be sufficient market evidence to establish Market Value using the sales comparison or income capitalisation approaches. Where there is no market evidence, or where a specialised property (e.g. an oil refinery) that is not normally bought and sold is involved, then the cost approach can be used as the valuation method. The cost approach should not be used where there are market sales of comparable properties, nor should it be used if a cash flow approach based on business profits is more typical of buyer behaviour.
The cost approach requires the valuer to consider three elements:
    1. The cost or value of an equivalent parcel of land;
    2. The cost of constructing a replica, a simple substitute building or a modern equivalent building; and
    3. An allowance for depreciation
The Residual Method
This method is used to assess the Market Value of land, or land and buildings, where there is potential for the land to be put to a higher value use. Examples include:
    1. Farm land being sold for residential, commercial or industrial development;
    2. Existing buildings which could be cleared and the land redeveloped for another use; and
    3. Existing buildings which could be converted to another, more valuable use
There are four stages in this method:
Stage 1: Assess the best scheme of development for the land;
Stage 2: Assess the value of the assumed development on completion;
Stage 3: Assess all the costs of completing the assumed development scheme; and
Stage 4: Estimate residual land value
Discounted Cash Flow
The discounted cash flow (DCF) method is frequently preferred to income capitalisation. DCF is a standard tool for investment analysis and is used in all investment markets. When valuing property, valuers are seeking to mirror market behaviour, hence the argument that if buyers base their decision to purchase an asset using DCF, then DCF should be used to estimate Market Value.
A DCF can be expressed by calculating Present Market Value:
This means that the Market Value is found by summating the PV of each net cash flow at the market-derived discount rate. The discount rate must be the effective rate for the period chosen: annual, quarterly or monthly.
Profit methods
The profits (or income approach) method is used for income-producing properties that are specifically designed for a particular type of business activity. It is typically also used when either the physical buildings are only sold as part of a business, or the buildings are constructed solely for that type of business and can only be used for an alternative business after substantial alterations.
It is also known as the ‘receipts and expenses’ or ‘income and expenditure’ method, as the first step is to establish the level of maintainable profits. Valuers in these markets develop an awareness of the normal income and expense associated with a particular business activity. They are therefore able to deduce from a set of accounts what is normal and maintainable and, by comparison with other known examples of the same type of building and activity, whether the level of profit is typical or could be improved with a better style of management.
Above mention are methods of valuation of real estate some other factor which influence the valuation are:
Location: Building, real estate and commercial properties located in commercial areas hold higher value than other.
Structure: The quality and cost of material during construction, size, current rate of labour, frontage and other physical attribute such as roof covering, height of building type of foundation, waterproofing and plinth level, also affect the price of particular property.
Amenities: Property valuation is clearly based on availability of necessities and facilities connected with comfortable housing.
So, we can say that valuation of real estate property requires technical knowledge and hence, done carefully.