Tax Implications On Merger And Acquisitions. A Legal Perspective
- IJLLR Journal
- May 6
- 1 min read
Kunal Sharma, XIM University, Xavier Law School
ABSTRACT
Mergers and Acquisitions (M&A) are pivotal strategies for business growth, market expansion, and operational efficiency. In India, these transactions are governed by the Companies Act, 2013, and the Income Tax Act, 1961, each offering distinct tax implications that shape deal structures. This article provides an in-depth exploration of the tax considerations involved in M&A, examining various transaction types, including horizontal, vertical, conglomerate, cross-border mergers, reverse mergers, and slump sales. Each type presents unique tax consequences, such as capital gains tax, exemptions under Section 47, and provisions for carrying forward losses under Section 72A. Cross-border M&A, in particular, introduces complexities around Double Taxation Avoidance Agreements (DTAA) and permanent establishment (PE) rules, demanding careful planning to avoid double taxation and ensure compliance with international tax treaties.
The article also highlights significant issues faced by Foreign Institutional Investors (FIIs) in recent M&A transactions, particularly around retrospective taxation, double taxation risks, and concerns regarding General Anti-Avoidance Rules (GAAR). These challenges have raised uncertainty, particularly for cross-border deals. To address these concerns, the Indian government has undertaken initiatives, including the reversal of retrospective tax amendments, the revision of DTAAs, and the implementation of a Simplified and Transparent Tax Framework (SAFE). The government’s actions aim to provide a more predictable and investor-friendly tax environment, fostering confidence in India’s M&A landscape.
In conclusion, while India’s legal framework for M&A provides clear guidance, ongoing challenges—especially for foreign investors—highlight the need for continued reforms to ensure a stable, transparent, and efficient tax regime. This will further enhance India’s position as a global investment hub and encourage successful M&A transactions.
