Finance Minister Nirmala Sitharaman has plugged the loophole on sale of an undertaking by one entity or person to another, which may have repercussions for business transfers as well as mergers and acquisitions.
At present, consideration of slump sale is the amount agreed between seller and buyer, which often leads to leakage of tax. Slump sale refers to sale of an entire undertaking instead of individual assets.
Amendments to the finance Bill, 2021, say that fair market value (FMV) will be taken as consideration of the sale.
Current provisions sometimes result in a situation where valuable assets were transferred at lower prices, resulting in tax leakage, said Shailesh Kumar, partner at Nangia & Co LLP said.
This may especially happen when the undertaking concerned consisted of appreciated real estate. The agreed price may not reflect its FMV, explained Kumar.
“The amendment seeks to plug this leakage and revalues the assets of an undertaking being transferred in a slump sale situation,” he said.
Earlier, the government had plugged this loophole when individual assets were sold, instead of an entire undertaking, Kumar said.
Dear Reader,
Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.
As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.
Support quality journalism and subscribe to Business Standard.
Digital Editor
RECOMMENDED FOR YOU