TAB Factor explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
A buyer who can amortise the asset for tax will pay more for it. The formula turns that into a multiplier.
The formula
TAB factor = N / (N − T × PVAF), where:
- N is the depreciable life of the asset;
- T is the tax rate;
- PVAF is the present value annuity factor over that life at the discount rate.
Worked example one — know-how
| Year | PV factor @ 15% |
|---|---|
| 1 | 0.87 |
| 2 | 0.76 |
| 3 | 0.66 |
| 4 | 0.57 |
| 5 | 0.50 |
| Total (PVAF) | 3.36 |
5 / (5 − 0.26 × 3.36) gives a TAB factor of 1.21. Applied: fair value with TAB = fair value without TAB × TAB factor = 180.63 × 1.21 = 218.58 on the mid-year basis, and 168.43 × 1.21 = 203.84 on the year-end basis.
Worked example two — customer relationships
| Year | PV factor @ 19% |
|---|---|
| 1 | 0.84 |
| 2 | 0.71 |
| 3 | 0.59 |
| 4 | 0.5 |
| Total (PVAF) | 2.64 |
4 / (4 − 0.26 × 2.64) gives a TAB factor of 1.207, and 39.57 × 1.207 = 47.76.
The benefit is defined as a hypothetical benefit available to a market participant by way of amortisation of the acquired intangible assets, thereby reducing the tax burden. The word hypothetical matters: the question is what a buyer could deduct, not what the current owner does.
The formula grosses the value up so that the asset, plus the tax shield its own amortisation creates, is consistent. That circularity is why it is a factor and not a simple addition.
Three inputs drive it:
The tax rate T. Higher tax means a larger deduction and a bigger factor. At T = 0 the formula collapses to N/N = 1 — no tax, no benefit.
The life N. A shorter amortisation period concentrates the deductions earlier, so they discount less and the factor rises.
The discount rate, through PVAF. A higher rate shrinks the annuity factor and therefore the benefit. Note the two examples: at 15% over 5 years PVAF is 3.36; at 19% over 4 years it is 2.64. The factors still land close — 1.21 and 1.207 — because the shorter life offsets the higher rate.
And the two limits. A TAB is added under the income approach only, since the value of TAB is understood to be embedded in the value of the intangible asset under the market or cost approach. And it does not apply where the asset will never be amortised: intangibles with indefinite lives are not subject to amortization and are subject to impairment.
Where the factor sits in the sequence
In every method the TAB is the last step. Relief from royalty ends with it; the with-and-without method allows it to be appropriately built and added to the overall value; MEEM and greenfield say the same. It is applied to the completed value, never inside the cash flows.
Before applying a TAB factor
- Confirm the asset is amortisable for tax in the relevant jurisdiction — all intangibles may not be eligible for tax benefits.
- Use the tax amortisation life for N, not the valuation life, where they differ.
- Use a discount rate consistent with the one used for the asset.
- Omit it entirely for an indefinite-life asset.
- Omit it under the market and cost approaches.
Common mistakes
- Adding a TAB factor to a market or cost approach value.
- Using the valuation life where the tax amortisation period is different.
- Applying it to an indefinite-life brand alongside a terminal value.
- Adding a TAB where the buyer would obtain no deduction.