Direct Tax Laws and International Taxation · Business Restructuring

Amalgamation under Income-tax Act 2025: Meaning and Tax Neutrality

Updated 11 October 2026 · Fact-checked

Under the Income-tax Act, 2025, amalgamation is a merger of companies in which all property and liabilities pass to the amalgamated company and shareholders holding at least 75% in value of the amalgamating company's shares become its shareholders. Section 70 then says the transfers of assets and shares are not a transfer for capital gains, if the amalgamated company is Indian and shares are allotted.

Understand Amalgamation: Meaning and Tax Neutrality Conditions

A merger is a commercial word. The tax law does not tax a merger as such. It uses the defined term amalgamation, and tax relief depends on whether your facts fit that definition.

An amalgamation means one or more companies merge into another company, or two or more companies merge to form a new company. Two tests must be met. First, all the property and all the liabilities of the amalgamating company become those of the amalgamated company. Second, shareholders holding at least 75% in value of the shares of the amalgamating company become shareholders of the amalgamated company. Shares already held by the amalgamated company, its nominee or its subsidiary are left out when you count the 75%.

Why does this matter? Normally, when a company transfers an asset, it makes a capital gain. When a shareholder gives up shares, that is also a transfer. If every merger were taxed, many sensible combinations would never happen. So section 70 says that the provisions of section 67 do not apply to certain transfers in a scheme of amalgamation.

The relief works at two levels. At the company level, section 70(1)(e) covers a transfer of a capital asset by the amalgamating company to the amalgamated company, provided the amalgamated company is an Indian company. At the shareholder level, section 70(1)(f) covers a transfer of shares in the amalgamating company, provided the shareholder gets shares in the amalgamated company and the amalgamated company is Indian. The exception is a shareholder that is itself the amalgamated company.

There is also a cross-border version. Section 70(1)(g) covers a foreign amalgamation where Indian company shares move from one foreign company to another. At least 25% of the shareholders of the amalgamating foreign company must continue as shareholders of the amalgamated foreign company. The transfer must also not attract capital gains tax in the country of incorporation of the amalgamating company. Section 70(1)(h) applies the same two conditions to shares of a foreign company that derive their value substantially from Indian company shares.

Key rules to remember

Amalgamation test (property and liabilities): All property + all liabilities of amalgamating company(ies) → amalgamated company; Partial transfer of assets or leaving some liabilities behind fails the definition.
Amalgamation test (shareholders): Shareholders holding ≥ 75% in value of shares of amalgamating company become shareholders of amalgamated company; Exclude shares held by the amalgamated company, its nominee or its subsidiary when finding the base. The test is on value, not number of shareholders.
Company-level relief: Section 70(1)(e): transfer of capital asset by amalgamating company to amalgamated company is not a transfer, if amalgamated company is an Indian company; The Indian-company condition applies to the amalgamated company.
Shareholder-level relief: Section 70(1)(f): transfer of shares in amalgamating company is not a transfer, if (i) made in consideration of allotment of shares in amalgamated company and (ii) amalgamated company is Indian; A shareholder that is itself the amalgamated company is excluded from the allotment condition.
Foreign amalgamation relief: Section 70(1)(g) and (h): ≥ 25% of shareholders of amalgamating foreign company continue + no capital gains tax in country of incorporation; Applies to Indian company shares (clause g) and to foreign company shares deriving value substantially from Indian company shares (clause h).

How to solve Amalgamation: Meaning and Tax Neutrality Conditions questions

Use the same sequence for any question on whether an amalgamation is tax neutral. Decide the facts first, then apply the relief clause by clause.

1Identify the parties: amalgamating company or companies, amalgamated company, and each shareholder. Note whether each is Indian or foreign.
2Test the definition. Check that all property and all liabilities pass to the amalgamated company.
3Test the 75% condition. Remove shares held by the amalgamated company, its nominee or subsidiary from the base. Then compare the value of shares whose holders become shareholders of the amalgamated company with that base.
4If the definition fails, stop. The scheme is not an amalgamation for tax purposes and section 70(1)(e) and (f) cannot help you.
5If the definition is met, apply section 70(1)(e) for assets transferred by the company. Check that the amalgamated company is an Indian company.
6Apply section 70(1)(f) for each shareholder. Check that shares in the amalgamated company are allotted and that the amalgamated company is Indian. Treat any cash or other consideration separately, as it is not covered by the allotment wording.
7For foreign amalgamations, apply the 25% shareholder continuity test and the no-capital-gains-tax-abroad test.
8State a clear conclusion: not a transfer, or taxable transfer, and name the party affected.

Quickest way: Four-check shortcut for MCQs

When to use it: Use this for Section A questions or short case scenarios where you need a yes or no on tax neutrality in under two minutes.

Check 1: Do all property and liabilities move? If no, not an amalgamation.
Check 2: Do holders of 75% or more in value (excluding the amalgamated company's own side) move across? If no, not an amalgamation.
Check 3: Is the amalgamated company Indian? If no, section 70(1)(e) and (f) fail.
Check 4: For a shareholder, did the shareholder get shares in the amalgamated company? If no, that shareholder's exemption fails.
For foreign amalgamations, replace checks 3 and 4 with the 25% continuity and no-foreign-tax tests.

Common mistakes in Amalgamation: Meaning and Tax Neutrality Conditions

Treating every merger as tax neutral
Students use merger and amalgamation as the same word.
Fix: Merger is only the commercial label. Tax relief needs the defined conditions: all property and liabilities transferred and the 75% shareholder test.
Counting the 75% on number of shareholders
The word shareholders suggests head count.
Fix: The test is on value of shares held. Compute it in rupees of share value.
Forgetting to exclude shares held by the amalgamated company or its nominee or subsidiary from the 75% base
Students take the total share capital as the base.
Fix: Remove those shares first, then test the 75%.
Ignoring the Indian company condition
Students focus on the share exchange ratio and miss the residence condition.
Fix: For clauses (e) and (f), the amalgamated company must be an Indian company. If it is foreign, the domestic reliefs fail.
Giving shareholder relief when only cash is received
Students assume relief follows the company-level exemption automatically.
Fix: Section 70(1)(f) needs the transfer to be in consideration of allotment of shares in the amalgamated company. Cash is not allotment of shares, so test it separately.
Mixing the 75% domestic test with the 25% foreign test
Both are shareholder percentages.
Fix: 75% in value defines amalgamation itself. 25% of shareholders continuing is an extra condition for foreign amalgamations under clauses (g) and (h).

Worked examples

Example 1

Alpha Ltd merges into Beta Ltd, both Indian companies. All assets and liabilities of Alpha pass to Beta. Alpha's shares have a total value of ₹10,00,000, of which Beta itself holds shares worth ₹1,00,000. Shareholders holding shares worth ₹6,30,000 become shareholders of Beta. Is it an amalgamation, and is Alpha's transfer of a capital asset to Beta a transfer under section 67?

Show the solution

All property and liabilities pass to Beta, so the first test is met.
Base for the 75% test = ₹10,00,000 − ₹1,00,000 held by Beta = ₹9,00,000.
Shareholders holding ₹6,30,000 become Beta's shareholders. 6,30,000 ÷ 9,00,000 = 70%.
70% is below 75%, so the second test fails.
The scheme is not an amalgamation. Section 70(1)(e) cannot be applied.

Answer: Not an amalgamation, because only 70% in value (less than 75%) of the eligible shareholders move to Beta. The transfer of the capital asset is not covered by section 70(1)(e) and is dealt with under the normal transfer provisions.

Example 2

Gamma Ltd merges into Delta Ltd, an Indian company, in a scheme that meets the definition of amalgamation. Mr. Iyer holds shares in Gamma and receives shares in Delta in exchange. Ms. Shah, another Gamma shareholder, receives only cash from the scheme. What is the position under section 70?

Show the solution

The scheme meets the definition, so the company-level exemption under section 70(1)(e) applies to Gamma's transfer of capital assets to Delta, because Delta is an Indian company.
Mr. Iyer: the transfer of his Gamma shares is in consideration of allotment of Delta shares and Delta is Indian. Section 70(1)(f) applies, so section 67 does not apply to his transfer.
Ms. Shah: she receives cash and no allotment of shares. The condition in section 70(1)(f)(i) is not met for her.
Her transfer is therefore not protected by clause (f).

Answer: Gamma's asset transfer to Delta and Mr. Iyer's share exchange are not treated as transfers under section 67. Ms. Shah's receipt of cash is outside section 70(1)(f), so her transfer is tested under the normal capital gains rules.

Exam tips

In case scenarios, write the definition test first. Marks are usually given for naming both conditions: all property and liabilities, and 75% in value.
Show the 75% computation with the base after excluding the amalgamated company's own holdings. A clear fraction earns method marks.
Always state the Indian company condition for the amalgamated company. It is a favourite trap in MCQs.
Quote the clause numbers of section 70, such as (e) for company assets and (f) for shareholders, only as they appear in the Act. Do not add section numbers you are unsure of.
End with a one-line conclusion: tax neutral or taxable, and for whom.

Practice questions from Business Restructuring

Amalgamation: Meaning and Tax Neutrality Conditions in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Amalgamation: Meaning and Tax Neutrality Conditions: frequently asked questions

What is the meaning of amalgamation under the Income-tax Act, 2025?

It is a merger of one or more companies with another company, or of two or more companies to form a new company. All property and liabilities of the amalgamating company must pass to the amalgamated company. Shareholders holding at least 75% in value of the amalgamating company's shares must become shareholders of the amalgamated company.

What is the difference between amalgamation and merger under income tax?

Merger is a general business term with no tax conditions. Amalgamation is the defined term, and tax neutrality depends on meeting its conditions. A merger that fails the definition does not get the section 70 reliefs for amalgamation.

Does the amalgamated company have to be an Indian company?

Yes, for the domestic reliefs. Section 70(1)(e) and (f) both require the amalgamated company to be an Indian company. Foreign amalgamations are dealt with separately in clauses (g) and (h).

Is the shareholder taxed when exchanging shares in the amalgamating company?

Not if section 70(1)(f) is satisfied. The shares must be transferred in consideration of allotment of shares in the amalgamated company, and the amalgamated company must be Indian. A shareholder that is itself the amalgamated company is excluded from the allotment condition.