Tax reforms in Budget 2024 that can boost capital flows and M&A transactions in India
economy in the world. And if it has to retain this status, two elements are critical – first, capital flows from domestic corporates, multinationals as well as financial sponsors must continue to be robust, and second, mergers and acquisitions and other value creation activities need a steroidal push. This Budget, the first one in the third term of the government, thus carries great expectations from investors and India Inc.
Here are seven predictions on what one could potentially see in the current Budget, from an M&A standpoint.
First, listed company transactions in India today face a peculiar and unique problem. Valuation rules enshrined in the anti-abuse provision contained in section 56 of the Income tax Act, can be misinterpreted, to throw open these transactions to an unintended consequence – that even bona fide trades between unrelated parties at prices discovered transparently and commercially negotiated, could still be subject to artificial pricing norms, and expose the transaction to ordinary income taxes, in the hands of the buyer. Clearly, in the current markets, one would expect a host of listed company transactions – exposing these transactions to a tax on a provision that was never intended to tax such trades, would be something that the government would want to resolve.
Second, there has been discussion around the various different tax rates applicable to capital gains in different situations. In the context of the current active transactions market, taxability of capital gains has assumed
