Taxation and Stamp Duty Aspects of Corporate Restructuring: formula sheet

Key formulas

Company-level relief (section 70(1)(e))

Transfer of capital asset by amalgamating company to amalgamated company in a scheme of amalgamation + amalgamated company is an Indian company ⇒ not a transfer

The only stated condition is that the amalgamated company is Indian. The amalgamating company can be Indian or foreign on the text of this clause.

Shareholder-level relief (section 70(1)(f))

Transfer of shares in amalgamating company + consideration is allotment of shares in amalgamated company + amalgamated company is Indian ⇒ not a transfer

Exception: relief does not apply where the shareholder itself is the amalgamated company.

Foreign amalgamation of Indian shares (section 70(1)(g))

Shares in an Indian company held by amalgamating foreign company, moved to amalgamated foreign company + at least 25% of shareholders of amalgamating foreign company remain shareholders + no capital gains tax in country of incorporation of amalgamating company ⇒ not a transfer

Both conditions must be met. 25% is a minimum count of shareholders, as the clause is worded.

Foreign amalgamation of indirect Indian assets (section 70(1)(h))

Shares of a foreign company (section 9(10)(a)) deriving value substantially from shares of an Indian company + 25% shareholder continuity + no tax on capital gains in country of incorporation ⇒ not a transfer

Same two conditions as clause (g), applied to the foreign company's shares.

Effect of section 70

Section 67 shall not apply to the transactions listed in section 70(1)

Neutrality works by taking the transaction outside the capital gains charge.

Banking company amalgamation (section 70(1)(i))

Transfer of capital asset by a banking company to a banking institution under a scheme of amalgamation sanctioned and brought into force by the Central Government under section 45(7) of the Banking Regulation Act, 1949 ⇒ not a transfer

A separate bank-specific clause. Do not confuse it with clause (e).

Capital gains on slump sale

Capital gains = Full value of consideration (deemed fair market value of the capital assets, as prescribed) − Net worth

Section 77(3): net worth is deemed to be cost of acquisition and cost of improvement. No indexation applies, as net worth stands in for cost.

Net worth

Net worth = Aggregate value of total assets − Value of liabilities (as in books)

Section 77(5)(a). Ignore any increase or decrease in asset value from revaluation.

Aggregate value of total assets

Depreciable assets: WDV of the block (section 41(1)(c)); self-generated goodwill: nil; assets fully deductible under section 46: nil; other assets: book value

Section 77(5)(b). Goodwill bought from a previous owner is not nil.

Nature of gain

Held 36 months or less: short-term. Otherwise: long-term

Section 77(1) and (2). Holding period is of the undertaking or division, not of each asset.

Accountant's report

Report in prescribed form, before the specified date in section 63, computing and certifying net worth

Section 77(4). Failure to furnish it is a compliance default.

Loss carry forward on demerger

Directly relatable to transferred undertaking: goes to resulting company. Otherwise: apportioned in the ratio of assets retained to assets transferred

Section 116(6). Covers accumulated loss and unabsorbed depreciation. Section 116(7) lets the Central Government notify conditions to ensure genuine business purposes.

Land or building, capital asset (section 78)

If consideration < stamp duty value, then full value of consideration = stamp duty value

Applies to capital assets, for section 72 computation.

110% tolerance rule (sections 53 and 78)

If stamp duty value ≤ 110% × consideration, then full value of consideration = actual consideration

If stamp duty value exceeds 110%, the whole stamp duty value is used, not just the excess.

Date of agreement rule

Stamp duty value on date of agreement may be used if agreement date ≠ registration date and part or full consideration received by specified banking or online mode on or before agreement date

Both conditions must be met. The word used is 'may'.

Land or building, not a capital asset (section 53)

If consideration < stamp duty value, then full value of consideration = stamp duty value

Same 110% and agreement-date rules apply. Stamp duty value is determined as per section 78(2) and (3).

Unquoted shares (section 79)

If consideration < fair market value (as prescribed), then full value of consideration = fair market value

Not for quoted shares. Does not apply to prescribed classes of persons and conditions.

Consideration not ascertainable (section 80)

Full value of consideration = fair market value on date of transfer

For computing income under the head Capital gains.

Slump sale (section 77)

Full value of consideration = fair market value of the capital assets (as prescribed); cost = net worth; net worth = aggregate value of total assets − liabilities

Revaluation is ignored. Accountant's report on net worth is required. Holding of 36 months or less gives short-term gain; otherwise long-term.

Eligible amalgamations

Industrial undertaking / ship / hotel company; banking company with specified bank; public sector with public sector; erstwhile public sector company (disinvestment case)

Section 116(1). Outside these, the section does not give the benefit.

Effect of amalgamation

Amalgamating company's accumulated loss + unabsorbed depreciation = amalgamated company's loss/depreciation of the year of amalgamation

Then normal set-off and carry-forward rules apply.

Conditions on amalgamating company

Business for ≥ 3 years; held ≥ 3/4 of book value of fixed assets held 2 years before amalgamation, continuously up to the date of amalgamation

Section 116(4)(a).

Conditions on amalgamated company

Hold ≥ 3/4 of book value of acquired fixed assets for ≥ 5 years; continue business ≥ 5 years; meet other prescribed conditions

Section 116(4)(b). Five years run from the date of amalgamation.

Consequence of breach

Loss/depreciation set off earlier = income of amalgamated company in the year of non-compliance

Section 116(5).

Time limit

Carry forward ≤ 8 tax years after the year the loss was first computed for the original predecessor entity

Applies to amalgamations effected on or after 1 April 2025 (section 116(12)).

Strategic disinvestment

Shareholding falls below 51% (from above 51%) AND control passes to buyer

Section 116(3)(c). Amalgamation must occur within five years from the end of the tax year in which the restriction in the share purchase agreement ends; the loss is capped at the position on the date the company ceased to be a public sector company (section 116(2)).

Basic rule

Section 70 transaction ⇒ section 67 (capital gains on transfer) does not apply

The relief applies only if every condition of the relevant clause is met.

Company to LLP: size limits

Turnover ≤ ₹60,00,000 and assets ≤ ₹5,00,00,000 in any of the 3 preceding tax years

Clause (ze)(v) and (vi). Both limits apply, and the company must be a private or unlisted public company.

Company to LLP: holding and payout limits

Partners' aggregate profit share ≥ 50% for 5 years; no payment from accumulated profits for 3 years

Clause (ze)(iv) and (vii). The periods run from the date of conversion.

Firm or proprietor to company

Shareholding ≥ 50% of voting power, continuing for 5 years

Clauses (zd)(iv) and (zf)(ii). Only shares may be received as consideration.

Shareholder exchange in amalgamation

Shares in amalgamating company exchanged for shares in amalgamated Indian company ⇒ not a transfer

Clause (f). The exception is where the shareholder is itself the amalgamated company.

Duty on conveyance by scheme

Stamp duty = rate of the state × value of immovable property in that state (subject to any cap or minimum)

The value is usually the higher of market value or the value in the scheme or books, depending on the state. Check the state rule given in the question.

Multi-state schemes

Total duty = Σ duty payable in each state where property is located

Each state taxes only property situated within it. Add the amounts and do not apply one state's rate to all.

Duty on shares

Dematerialised shares: Central rate on transfer of securities. Physical shares: transfer deed duty. Fresh issue: duty on allotment as per the state

Allotment to shareholders of the transferor in a merger is a fresh issue, not a transfer of existing shares.

Core rule on the order

Tribunal order = instrument chargeable where the state law says so; duty is payable by the transferee, usually before the order is acted on

Stated generally. The exact person liable and the time limit depend on the state law.

Amalgamation test (tax, not stamp duty)

Shareholders holding not less than three-fourths in value of shares in the amalgamating company become shareholders of the amalgamated company

From section 2(6) of the Income-tax Act, 2025. It decides tax neutrality and does not decide stamp duty.

Quick revision

• Tax neutrality means restructuring does not trigger tax on transfer when the stated conditions are met.
• A slump sale is a transfer of an undertaking or division for a lump sum, without values assigned to individual assets.
• Slump sale gains are long-term capital gains, but short-term if the undertaking was held for thirty-six months or less.
• For slump sale, net worth is deemed to be both cost of acquisition and cost of improvement.
• Net worth = aggregate value of total assets less liabilities as in the books; revaluation changes are ignored.
• Depreciable assets in net worth are taken at written down value of the block; self-generated goodwill is nil.
• An accountant's report computing and certifying net worth must be furnished in the prescribed form for a slump sale.
• If consideration for land or building is below stamp duty value, the stamp duty value is deemed the full value of consideration.
• If stamp duty value does not exceed 110% of the consideration, the actual consideration is the full value.
• Stamp duty value on the agreement date may be used if consideration was received by banking or online mode on or before that date.
• The assessee can seek a Valuation Officer reference if the stamp duty value is claimed to exceed fair market value.
• Stamp duty on restructuring depends on the instrument or order and the state law, so state the facts before the conclusion.

Common mistakes

• Saying the amalgamated company must be a public or listed company. Fix: For clauses (e) and (f) the only entity condition is that the amalgamated company is an Indian company.
• Applying relief to the shareholder when cash is received. Fix: Check the form of consideration. Relief in clause (f) is tied to allotment of shares in the amalgamated company.
• Treating slump sale as the sum of gains on each asset. Fix: Treat the undertaking as one capital asset. Use only net worth as cost and one deemed full value of consideration.
• Including revaluation surplus in net worth. Fix: Section 77(5)(a) says to ignore any change in asset value due to revaluation. Reverse it.
• Taxing only the excess over 110% instead of the whole stamp duty value. Fix: If stamp duty value exceeds 110% of consideration, the entire stamp duty value becomes the full value of consideration.
• Using 110% as a cap when the stamp duty value is exactly 110%. Fix: The text says 'does not exceed 110%'. At exactly 110% the actual consideration is used.
• Applying the section to every amalgamation. Fix: Always start by matching the facts to clauses (a) to (d) of section 116(1).
• Mixing up the amalgamating and amalgamated company conditions. Fix: The amalgamating company: three years of business, three-fourths of assets held from two years before. The amalgamated company: five years of holding and of business continuance.
• Treating every conversion as exempt automatically. Fix: Test each condition of the clause with the facts before concluding.
• Applying clause (ze) to a listed public company. Fix: State the eligible company type first. A listed public company fails the test.

Exam tips

• Write the clause numbers: section 70(1)(e) for the company and (f) for the shareholder. Examiners reward the provision-analysis-conclusion order.
• Always state the 'Indian company' condition explicitly. It is the one condition both clauses share.
• In foreign amalgamation questions, tick both conditions separately: 25% continuity and no foreign capital gains tax.
• Because the paper is written and case-based, add one practical line, such as keeping the scheme order and valuation record on file for tax assessment.
• Write the provision first, then apply facts, then conclude. Examiners reward this order.
• In numerical questions show net worth as a separate working. Marks are given for each correct asset treatment.
• Mention the accountant's report under section 77(4) in every slump sale answer.
• In a demerger answer, list each condition and tick it against the facts. Do not just say it is tax-neutral.