Changes in tax norms on slump sale deals may lead to litigation for firms

Changes will impact several M&A transactions, including internal restructuring by companies which were signed since April 2020.

The mergers and acquisitions (M&As) signed in the current financial year (2020-21, or FY21) will have to take into account the amended Finance Bill which states that the net worth for computation of capital gains tax on slump sales will have to be on the full market value of the asset and not the consideration received by the buyer.

The tax computation will not include goodwill. The cost of acquisition to be regarded for any self-generated goodwill will be considered zero. This will lead to increased litigation, with companies objecting to the fair-market value formula.

The new norms will impact several M&A