Budget 2016 from Merger and Amalgamation view

Every year without fail, we look forward to the Union Budget with a sense of anticipation, hope and expectation. Budget 2016 was no different. Compared to the earlier ones, this was a lengthy one and has plenty of amendments to all major tax laws in the country.

Budget from Merger & Amalgamation view:

1. The applicability of place of effective management is proposed to be deferred by one year i.e. will be effective from FY 17.
2. Beneficial concessional tax rate of 10% is extended to non-residents on long term capital gains on transfer of private company shares.
3. Clarification on MAT exemption for foreign companies before 1 April 2015 has been brought out.
4. As a measure to reduce tax litigation and plug tax arbitrage opportunities, any buyback (whether under scheme of arrangement sanctioned by High Court or otherwise) is proposed to covered within the ambit of buy-back tax provision and the manner in which ‘amount received’ is to be computed in various circumstances including tax neutral re-organizations and different tranches is proposed to be prescribed. The amendment is proposed to apply with effect from 1 June 2016.
5. With a view to rationalise the tax treatment for dividend income, it is proposed to tax dividend in excess of Rs. 1m for resident individuals, Hindu undivided family (HUF) or firm who is resident in India at 10% on gross basis.
6. For conversion of company to LLP to be tax neutral, an additional condition has been introduced according to which the total value of the assets as appearing in the books of account of the company in any of the three years prior to conversion should not exceed Rs. 50m.
7. Receipt of shares by shareholder in merger and demerger will not be taxable in hands of recipient as received without consideration.
8. Period of holding for unlisted securities reduced from three years to two years to treat them as long term (though Finance Minister mentioned this in his speech, the amendment does not appear in the Finance Bill – hopefully the same is introduced in the law and enacted). The Finance Minister has expressed commitment to implementing GAAR from April 1, 2017.