Mergers & Acquisitions (M&A) are strategic moves that enable businesses to expand, optimize resources, reduce competition, and enhance profitability. However, one of the most critical and complex aspects of any M&A transaction is taxation. Understanding the tax implications can maximize benefits, reduce liabilities, and ensure compliance with tax laws.
At Calzone, we specialize in M&A tax planning and advisory, ensuring that your deal structure is tax-efficient, legally compliant, and financially optimized.
Key Tax Consideration in Mergers & Acquisitionsy
- Income Tax Implications
- Capital Gains Tax Treatment
- Tax Reliefs on Losses & Depreciation
- Deductions for Business Expenditures
- GST Implications on M&A Transactions
- Transfer of Input Tax Credit (ITC) under GST
Need expert tax guidance for your M&A deal? Contact Calzone today!
Capital Gains Tax in Mergers & Acquisitions
When Is Capital Gains Tax Exempt in an M&A Deal?
Section 47 of the Income Tax Act provides tax exemptions for certain capital asset transfers during M&A transactions.
Section |
Exemption |
Section 47(vi) |
No capital gains tax on asset transfer by the amalgamating company to the amalgamated company, if the latter is an Indian company. |
Section 47(via) |
No capital gains tax for cross-border mergers where at least 25% of shareholders of the amalgamating foreign company remain in the new entity. |
Section 47(vii) |
No tax on transfer of shares by shareholders of the amalgamating company if they receive shares of the amalgamated Indian company in return. |
Section 47(viaa) |
No capital gains tax on the transfer of assets from a banking company to another banking institution during an amalgamation. |
Tax Saving Tip: Ensure your merger or acquisition meets the eligibility criteria under Section 47 to avoid unnecessary capital gains tax. Calzone can help structure your transaction tax-efficiently.
Tax Relief for Losses & Depreciation (Section 72A & 72AA)
M&A deals often involve companies carrying accumulated losses and unabsorbed depreciation. The tax laws provide relief for such losses when the merger meets certain conditions.
Section |
Tax Relief |
Section 72A |
Allows carry forward & set off of accumulated losses and unabsorbed depreciation of the amalgamating company by the amalgamated company. |
Section 72AA |
Similar to 72A, but applicable specifically to mergers of banking institutions and government companies. |
Ensure your M&A deal qualifies under Sections 72A & 72AA to leverage tax benefits on past losses. Calzone’s tax experts can help you structure the deal strategically.
Business Expenditure Deductions for M&A Transactions
Section |
Tax Deduction |
Section 35(5) |
Allows deduction for capital expenses on scientific research transferred during the merger. |
Section 35DD |
Allows 1/5th deduction of amalgamation expenses for 5 years. |
Section 35D(5) |
Unused preliminary expense deductions from the amalgamating company can be claimed by the amalgamated company. |
Section 36(1)(vii) |
Deduction allowed for bad debts of the amalgamating company taken over in the merger. |
Optimize your tax benefits by strategically planning your merger. Calzone ensures you take full advantage of all deductions!
GST Implications on Mergers & Acquisitions
Under the GST Act, 2017, businesses must transfer unutilized Input Tax Credit (ITC) when merging or acquiring another entity.
How to Transfer Input Tax Credit (ITC) in M&A Transactions?
- Section 18(4) of CGST Act allows ITC transfer only if liabilities are also transferred.
- Rule 41 of CGST Rules lays down the procedure:
- File Form ITC-02 to transfer ITC.
- Submit a Chartered Accountant (CA) Certificate confirming that liabilities are transferred.
- Transferee must accept the details on the GST portal.
Ensure seamless GST compliance in your M&A deal with Calzone’s expert tax advisory.
Why Choose Calzone for M&A Taxation?
- Tax-Efficient Deal Structuring - We optimize mergers & acquisitions to minimize tax liabilities.
- Regulatory Compliance - We ensure compliance with Income Tax, GST, SEBI, RBI, and Companies Act regulations.
- Expert Capital Gains Tax Planning - Helping businesses avoid unnecessary tax burdens.
- Seamless ITC Transfer Support - Ensuring smooth transition of unutilized tax credits.
- Full-Spectrum M&A Advisory - From due diligence to execution, we handle it all!
Optimize your M&A deal with expert tax planning by Calzone!
Frequently Asked Questions (FAQs)
If the merger meets conditions under Section 47(vi) & (vii), no capital gains tax is applicable.
Yes, under Section 72A, accumulated losses and unabsorbed depreciation can be carried forward by the amalgamated company.
The transferor company must file ITC-02 to transfer unutilized Input Tax Credit to the new entity.
If structured correctly, an acquisition can avoid capital gains tax for both companies involved.
Yes, under Section 47(via) & (viab), cross-border mergers can qualify for tax exemptions if certain conditions are met.
Have more questions? Contact Calzone for expert M&A tax guidance today!
Maximize Your M&A Tax Benefits with Calzone
- Mergers & Acquisitions demand careful tax planning to maximize financial gains. Whether you're acquiring a company or merging operations, Calzone ensures your deal is tax-efficient and fully compliant.
- Let's make your M&A transaction smooth, profitable, and legally sound!