India

Corporate - Other issues

Last reviewed - 24 May 2022

Mergers and acquisitions

The expression ‘merger’ has not been defined in the Income-tax Act but has been covered as part of the definition of the term 'amalgamation'. Amalgamation is defined as a merger of one or more companies with another, or the merger of two or more companies to form a new company, in such a way that all the assets and liabilities of the amalgamating company or companies become the assets and liabilities of the amalgamated company, are held by the amalgamated company for a minimum period of five years, and shareholders holding not less than 75% in value of the shares in the amalgamating company or companies become shareholders of the amalgamated company. In case of demerger, the cost of acquisition and period of holding of the assets related to the demerged company will be available to the resulting company.

Capital gains

No capital gains tax is levied on the transfer of capital assets by an amalgamating company to the amalgamated company, provided the amalgamated company is an Indian company. Similar is the position in case of a demerger by a demerged company to a resulting company.

In cases where shares of an Indian company are transferred by a foreign company or a demerged foreign company to another foreign company or resulting foreign company, there is no tax payable, provided it satisfies certain specified conditions. Furthermore, the shareholder of the amalgamating company or demerged company is not liable to pay capital gains tax on the exchange of shares with that of the amalgamating company or the resulting company under the scheme of amalgamation.

Conversion of a bond or debenture of a company into equity shares is specifically exempt from capital gains tax. Furthermore, conversion of preference shares to equity shares will now be exempt from capital gains tax. The cost of acquisition and period of holding of the preference shares will be considered while determining the cost of acquisition and period of holding of equity shares acquired on such conversion. This is effective from tax year 2018/19 onwards.

Inter-governmental agreements (IGAs)

The Indian government has signed an IGA with the United States (US) to implement the Foreign Account Tax Compliance Act (FATCA) in India. According to the IGA, foreign financial institutions (FFIs) in India are required to report tax information about US account holders to the Indian Government, which will, in turn, relay the information about Indian account holders to the US Internal Revenue Service (IRS). Furthermore, the US IRS will provide similar information about Indian citizens having any accounts or assets in the United States. This automatic exchange of information began from 30 September 2015. Subsequently, the signing of the IGA, the Indian Government enacted rules relating to FATCA reporting in India.