-By ArdorComm News Network
February 6, 2025
The Union Budget 2025-26 has introduced a significant change in the treatment of carry-forward losses in mergers and acquisitions (M&As), restricting them to the residual period from the date of loss rather than the merger date. Effective from April 1, 2025, this move aims to prevent the evergreen extension of losses and aligns M&A taxation with demerger regulations.
Experts believe this will make mergers less attractive, particularly for insolvency and bankruptcy cases where loss utilization is a key factor in valuation. “This restriction limits the benefit acquirers can derive from losses, potentially impacting the auction value of distressed assets,” said Amrish Shah, Partner, Deloitte India.
Abhishek Mundada, Partner at Dhruva Advisors, explained that the losses will be restricted to the eight-year period from when they were first computed for the original entity, preventing perpetual rollovers.
Despite this curtailment, Finance Minister Nirmala Sitharaman has promised reforms to streamline merger procedures, reducing bureaucratic delays that currently stretch timelines to over a year for listed companies. The National Company Law Tribunal (NCLT) process has been identified as a major bottleneck, and the Budget hints at easing these restrictions, though specific details are awaited.
Industry leaders welcome the proposed changes to fast-track mergers, particularly for small companies and intra-group restructuring. “Relaxations in fast-track provisions will significantly reduce compliance burdens and processing time,” said Anish Shah, Partner, BDO India.
While tax experts are closely watching the impact of these reforms, reducing merger timelines is expected to facilitate corporate restructuring and encourage foreign investment.
Source: Business Standard