Taxation in cases of Mergers & Acquisitions

When two well-known companies announce a merger, the headlines are about brands and share prices. A tax lawyer reads the same news and asks different questions. If one company hands its whole business to another, has it made a profit on the handover, and is that profit taxable? Will its accumulated losses disappear? And who has to deduct tax when money moves? The Income-tax Act answers these questions, and the syllabus adds a second subject to this topic: how tax is collected during the year, through deduction at source and advance tax.

In two minutes

The Income-tax Act gives a tax-neutral route to a genuine amalgamation or demerger, so that the transfer of assets between the companies is not treated as a taxable sale and some attributes such as losses may move across, but only if the statutory conditions are met; separately, tax is collected through the year by deduction at source, collection at source and advance tax.

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