Budget 2022: Key Tax Proposals Impacting Business Reorganisations

The Government has been making consistent efforts to simplify and rationalise the tax framework in India. Accordingly, the Finance Bill, 2022 (Bill) proposes several amendments to address practical nuances and anomalies arising in business successions/reorganisations.

The Income Tax Act, 1961 (ITA) provides a tax framework for business successions and reorganisations. Specifically, where a business is succeeded by any other entity, which subsequently continues to carry on that business, the seller is assessed for the income of the business up to the date of succession, and the acquirer is assessed for the income of the business after the date of succession. Tax dues of the business up to the date of succession cannot ordinarily be recovered from the acquirer (unless such dues cannot be recovered from the seller). While these are the broad contours of the provision governing business successions/reorganisations, there are certain practical nuances that have led to protracted litigation and nullification of tax demands imposed on entities involved in such transactions. Certain amendments have been proposed to address these procedural anomalies, as discussed below.

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