Taxation of Business Restructuring and Reorganization in Bangalore

Taxation of Business Restructuring and Reorganization in Bangalore

What Is Merger/ Amalgamation/ Demerger/ Re-construction?

Amalgamation - Combination of two or more independent business corporations into a single enterprise.

Demerger – Transfer and vesting of an undertaking of a company into another company.

Reconstruction- Re-organisation of share capital in any manner; varying the rights of shareholders and/or creditors.

Corporate Restructuring Advisors in Bengaluru, Karnataka

Broad Checklist for Mergers

  • Examine whether a Forward Merger or a Reverse Merger is more beneficial : the factors to be considered are tax benefits, listing, etc.
  • In case of Listed Companies, obtain SEBI’s prior permission.
  • Ensure that the Main Objects or the incidental objects of the Memorandum of Association contain the power to amalgamate.
  • Ensure that the Scheme does not violate, override or circumscribe the provisions of securities laws or the stock exchange requirements.
  • Consider whether the merger would be covered under the Competition Act and hence, one which requires the permission of the Competition Commission.
  • Valuation of shares for fixing the Share Exchange Ratio.
  • Fairness Report from a Merchant Banker on the Valuation Report in the case of Listed Companies.
  • Convene a Board Meeting to approving the Scheme of Amalgamation.
  • Obtain the consent/approvals, if any, required prior to the merger.
  • Prepare the Scheme of Amalgamation and Explanatory Statement.
  • The Explanatory Statement forwarded must disclose the pre and post-merger capital structure and shareholding pattern
  • File the scheme/petition proposed to be filed before the Court or Tribunal with the Stock Exchanges, for their approval, at least a month before it is presented to the Court or Tribunal.

Listed companies must also submit to the stock exchange, an Auditors’ Certificate to the effect that the accounting treatment contained in such schemes is in compliance with all the applicable Accounting Standards.

Listed Companies must comply with the requirements of SEBI Cir CFD /DIL/1/2014 which lays down various procedures for obtaining SEBI’s permission. These include, obtaining share holders’ approval through Postal Ballot and eVoting in certain cases, e.g., where the promoters would be issued additional shares under the Scheme, where related parties are involved in the Scheme, etc.

  • Receive the approval of the Stock Exchange and the SEBI in case of Listed Company
  • Apply to the High Court / National Company Law Tribunal in Form Nos. 33 and 34
  • Send a copy of the Application to the ROC within 30 days

Taxation of business restructuring and reorganization in Bangalore, India, is subject to the provisions of the Income Tax Act, 1961. Business restructuring and reorganization can take various forms, such as mergers, demergers, amalgamations, and acquisitions. The tax implications will vary based on the specific type of restructuring. Here are some key points to consider:

1. Mergers and Amalgamations: Section 2(1B) of the Income Tax Act: Defines mergers and amalgamations.

Tax Neutral: In general, mergers and amalgamations can be tax-neutral if certain conditions are met. This means that the accumulated losses and unabsorbed depreciation of the amalgamating company can be carried forward to the amalgamated company.

Exemption: Capital gains arising from the transfer of capital assets in a scheme of amalgamation are exempt from tax.

2. Demergers: Section 2(19AA) of the Income Tax Act: Defines demerger.

Tax Neutral: Similar to mergers, demergers can also be tax-neutral if certain conditions are satisfied.

Exemption: Capital gains arising from the transfer of capital assets in a scheme of demerger are exempt from tax.

3. Transfer Pricing: In case of restructuring involving international transactions, transfer pricing regulations apply. Transactions between related parties should be conducted at arm's length prices.

4. Stamp Duty: Stamp duty implications may arise on the transfer of assets as per the Karnataka Stamp Act, 1957.

5. Goods and Services Tax (GST): GST implications should be considered, especially in the case of the transfer of a business as a going concern.

6. Compliance with Regulatory Authorities: Compliance with regulatory authorities like the Securities and Exchange Board of India (SEBI) may be required in case of listed companies.

7. Employee Stock Options (ESOPs): Tax implications related to ESOPs should be considered, especially if there is a change in ownership or control.

Created & Posted by Navneet Kumar
CA  Article at TAXAJ

TAXAJ is a consortium of CA, CS, Advocates & Professionals from specific fields to provide you a One Stop Solution for all your Business, Financial, Taxation & Legal Matters under One Roof. Some of them are: Launch Your Start-Up Company/Business, Trademark & Brand Registration, Digital Marketing, E-Stamp Paper Online, Closure of Business, Legal Services, Payroll Services, etc. For any further queries related to this or anything else visit TAXAJ



TAXAJ Corporate Services LLP
Contact: 8961228919 ; 8802812345 | E-Mail: connect@taxaj.com




    • Related Articles

    • ESOP (Employee Stock Option Plan) Taxation in Bangalore

      Understanding ESOP Taxation in Bangalore: A Guide for Employees and Employers Employee Stock Ownership Plans (ESOPs) have become increasingly popular in Bangalore, the vibrant tech hub of India, as companies vie for top talent in a competitive ...
    • How to Start Export Import Business?

      What is an Export Import Business? Export Import businesses are firms that conduct businesses with international companies to procure global products & sell homegrown products. Import/export business is a company that either exports products to be ...
    • Types of Business in India

      Types Of Business Entities In India India has been identified as one of the fastest growing major economies in the world, its service industry being the key contributor. India is going through a phase of extraordinary economic liberation and is ...
    • Most Popular Business in India

      Most Profitable Business in India 2021 A growing economy like India’s has a world of opportunities for aspiring Indian entrepreneurs. Here are 10 segments that are attracting the most newcomers given their high potential to become a profitable ...
    • How to Start a New Business; Step by Step Guide

      How to Start a Business: A Step-by-Step Guide Starting a new small business? Find out where to begin and how to achieve success. You want to make sure you prepare thoroughly before starting a business, but realize that things will almost certainly go ...