With Finance Minister Nirmala Sitharaman all set to table the Union Budget 2025 on February 1, Deloitte expects the government to streamline tax structures and improve the overall ease of doing business in terms of mergers and acquisitions. During the first nine months of 2024, the total value deals in India surged by 66 per cent compared with the same period in 2023 and these were driven by high-value transactions. “Businesses across various sectors in India intend to further use cross-border M&A to strengthen their international presence, acquire new technologies and consolidate resources,” said Vivek Gupta, Partner, Deloitte, while adding that measures that will streamline tax structures will help going forward.
The industry stakeholders and even the tax experts are expecting the government to unveil amendments aimed at rationalising various provisions, fostering economic growth, and promoting investor confidence.
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Deloitte, meanwhile, pointed out three expectations from the upcoming Budget and these include taxation on contingent consideration, applicability of Section 56(2)(x) on listed company trades, and exemptions for enabling carry forward of business losses in case of internal group structuring.
Here is a list of expectations from Union Budget 2025-26, as outlined by Deloitte:
Expectation 1
While making investments in India, most investors plan to introduce a combination of clauses in the shareholder’s agreement, including contingent consideration based on certain performance milestones. In essence, Deloitte said, such clauses incentivise promoters to achieve better performance after the deal. There is no clarity on whether such contingent considerations should be taxed in the year of transfer of shares or in the year of receipt after the consideration crystallises. “It may be clarified by an explanation or clarificatory provision that the contingent portion should be taxable as capital gains in the year it is crystallised, irrespective of the year the transfer of share takes place. The introduction of a mechanism to defer taxation until the contingency is realised would improve tax certainty for both parties involved in the transaction,” Vivek Gupta said.
Expectation 2
Section 56(2)(x) of the Income Tax Act, 1961 serves a critical role in preventing tax avoidance through undervalued asset transfers. Still, its interpretation in the case of the trade of shares of listed companies in an off-the-exchange transaction could lead to unintended tax liabilities.
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