Amendments to the finance Bill, 2021, say that fair market value (FMV) will be taken as consideration of the sale
Finance Minister Nirmala Sitharaman | Photo: PTI
Finance Minister Nirmala Sitharaman has plugged the loophole on sale of an undertaking by one entity or person to another, which may have repercussions for business transfers as well as mergers and acquisitions.
At present, consideration of slump sale is the amount agreed between seller and buyer, which often leads to leakage of tax. Slump sale refers to sale of an entire undertaking instead of individual assets.
Amendments to the finance Bill, 2021, say that fair market value (FMV) will be taken as consideration of the sale.
Current provisions sometimes result in a situation where valuable assets were transferred at lower prices, resulting in tax leakage, said Shailesh Kumar, partner at Nangia & Co LLP said.
This may especially happen when the undertaking concerned consisted of appreciated real estate. The agreed price may not reflect its FMV, explained Kumar.
“The amendment seeks to plug this leakage and revalues the assets of an undertaking being transferred in a slump sale situation,” he said.
Earlier, the government had plugged this loophole when individual assets were sold, instead of an entire undertaking, Kumar said.