Skip to main content

Firms buying stressed assets may get tax relief

Firms buying stressed assets may get tax relief
The government is considering giving tax relief to companies that acquire stressed assets under the insolvency process.Some of such steps like carrying forward tax holidays may come up in the Budget, while the government may approach the goods and services tax (GST) Council for giving relief on the GST.
For tax relief on the stamp duty, states’ cooperation might be sought, sources said. Companies going through the insolvency procedure face tax-related road blocks, making the resolution process tedious. For example, they pay the GST on sales of assets as well as brands, royalty, etc. Earlier, under the Sick Industrial Companies (Special Provisions) Act, companies were given exemptions from the central sales tax (CST). With the advent of the GST, the CST is no longer there.
Exemption from the GST will help companies bid for assets at higher prices, resulting in more funds for lenders. “If GST exemption is granted for assets sold pursuant to the Insolvency and Bankruptcy Code (IBC) process, it would increase recoveries for lenders,” Amrish Shah of Deloitte India said.
Tax issues faced by companies include GST, stamp duty, transfer of losses, and unabsorbed depreciation 
The relief on this front likely to be provided in the Budget, through GST Council and with cooperation of states
As many as 2,434 new cases filed before the NCLT since the enactment of IBC last year
Similarly,sales of assets including land would attract the stamp duty, which varies from state to state in the range three to 10 per cent, but in most states it is around five per cent.The stamp duty isastate subject and as such is required to be amended by states.
Even though there isacentral law —the Indian Stamp Act, 1989 —the rates are decided by states, which have the Constitutional right to make any changes to the Act and have their own sets of rules in this regard.Even inaparticular state, these might vary from one locality to another.For example, Maharashtra has the Bombay Stamp Act, 1958.
Other states such as Gujarat, Karnataka, Kerala, Rajasthan, and Tamil Nadu also have their laws on this.There is also an issue of transferring losses or tax holidays of the company acquired to the one that has purchased it. According to current laws, the tax holiday enjoyed by the insolvent company cannot be carried forward.
“To make the IBC process more robust, the carried forward losses of the company under the IBC should be shifted to the acquiring company pursuant to the acquisition of business,” Shah said.Also, there are conditions on transferring losses and un absorbed depreciations in the case of merger or demerger.
For instance, the transferee company should continue to hold 75 per cent of the book value of the fixed assets for at least five years and the amalgamated company has to achieve at least 50 per cent of the installed capacity of the amalgamating company before the end of four years and maintain it till the fifth year in order to receive such transfers.
These conditions are likely to be relaxed for merger under the IBC.Neeru Ahuja of Deloitte said: “Tax issues faced by companies under the IBC could lead to a large number of taxation disputes.It is important for the government to resolve the matter.”A recently constituted committee set up by the government under the chairmanship of the secretary in the Ministry of Corporate Affairs is looking at these changes.
The Business Standard, New Delhi, 19th December 2017


Popular posts from this blog

RBI rushes in to prop up falling rupee

RBI rushes in to prop up falling rupee India’s central bank reportedly intervened in the currency markets on Monday to prevent a further slide in the local unit, which breached the 67 mark to a dollar for the first time in 15 months amid a widening trade gap and runaway import bills fuelled by high crude-oil prices. Some state-owned banks were seen selling dollars aggressively, interventions that market dealers attributed to the central bank’s strategy to stem the decline of the Indian rupee against the US currency. The rupee is the worst performing among a dozen Asian monetary units in the past three months. It lost 4.25 per cent to the dollar during the period, show data from Bloomberg. On Monday, the Reserve Bank of India (RBI) is said to have sold about Rs 800 million collectively on the spot and exchange traded futures markets, dealers said. An email sent to RBI remained unanswered until the publication of this report. The currency market has seen such a strong central bank interven…

GST Refund of Rs 20,000 Cr Pending: Exporters’ Body

GST Refund of Rs  20,000 Cr Pending: Exporters’ Body Refund of over Rs 20,000 crore on account of Goods and Services Tax (GST) is pending with the government with more than half the amount stuck as input tax credit, Federation of Indian Export Organisations said on Tuesday. While claims over Rs7,000 crore were cleared in March, the amount was Rs 1,000 crore in April.However, after exporters’ request, the GST council and tax department are organizing a second phase of Special Refund Fortnight starting May 31, which will enable exporters to draw their refunds at a speedy pace. Many exporters have been unable to file the refund of input tax credit due to technical glitches, exports and claim happened in different months. The major challenge lies on ITC refund especially because the process is partly electronic and partly manual which is cumbersome and add to the transaction cost, the exporters’ body said. On IGST, refunds are getting delayed due to airline and shipping companies not submitt…

Shrinking footprints of foreign banks in India

Shrinking footprints of foreign banks in India Foreign banks are increasingly shrinking their presence in India and are also becoming more conservative than private and public sector counterparts. While many of them have sold some of their businesses in India as part of their global strategy, some are trying to keep their core expertise intact. Others are branching out to newer areas to continue business momentum.For example, HSBC and Barclays Bank in India have got out of the retail business, whereas corporate-focused Standard Chartered Bank is now trying to increase its focus on retail “Building a retail franchise is a huge exercise and takes a long time. You cannot afford to lose it,” said Shashank Joshi, Bank of Tokyo-Mitsubishi UFJ’s India head.According to the Reserve Bank of India (RBI) data, foreign banks’ combined loan book shrunk nearly 10 per cent from Rs 3.78 trillion in fiscal 2015-16 to Rs 3.42 trillion last financial year. The banking industry, which includes foreign banks…