Analysis of Tax Provisions in Corporate Amalgamations Clause 116 of the Income Tax Bill, 2025 Vs. Section 72A of Income Tax Act, 1961

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..... losses and depreciation, which are critical factors in corporate restructuring. The clause provides a framework for how losses and depreciation are to be handled when companies undergo structural changes, reflecting an effort to align tax benefits with genuine business purposes. Objective and Purpose The primary objective of Clause 116 is to facilitate corporate restructuring by allowing the amalgamated or resulting company to carry forward and set off accumulated losses and unabsorbed depreciation. This is intended to encourage mergers and acquisitions, strategic disinvestment, and other forms of business reorganization, which can lead to more efficient business operations and economic growth. The provision seeks to ensure that tax bene .....

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..... esigned to ensure that amalgamations are conducted for genuine business purposes rather than solely for tax advantages. Demerger Provisions 1. Allocation of Losses and Depreciation: Clause 116(6) provides for the allocation of losses and depreciation between demerged and resulting companies based on their direct relation to transferred undertakings or proportional asset retention. This ensures a fair distribution of tax attributes following a demerger. 2. Genuine Business Purpose Requirement: Sub-section (7) empowers the Central Government to specify conditions to ensure that demergers are conducted for legitimate business reasons, preventing misuse of tax provisions. Reorganization of Business 1. Successor Entities: Clauses 116(8) .....

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..... ar types of corporate restructuring. 3. Conditions for Eligibility: Both include conditions to ensure that the restructuring serves genuine business purposes, such as asset retention and business continuity requirements. Differences 1. Expanded Scope in Clause 116: Clause 116 explicitly includes provisions for strategic disinvestment and reorganization involving limited liability partnerships, reflecting a broader and more modern approach to business restructuring. 2. Specific Provisions for Demergers: Clause 116 provides a detailed framework for handling losses and depreciation in demergers, which is more comprehensive than the provisions in Section 72A. 3. Central Government's Role: Clause 116 allows the Central Government to .....

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