How I-T Bill 2025 might hurt ease of doing business
What's the story
The recently proposed Income-Tax Bill, 2025, has come under fire from experts for not providing tax-neutral treatment to fast-track demergers. The move is seen as a contradiction to the Indian government's goal of improving ease of doing business. Tax experts have pointed out that this exclusion creates an uneven tax framework and undermines a corporate reorganization mechanism introduced specifically for small and closely held companies.
Process overview
Understanding fast-track demergers
Rajat Mohan, senior partner at tax consulting and advisory firm AMRG & Associates, explained that fast-track demergers under Section 233 of the Companies Act, 2013 are simplified mergers sans National Company Law Tribunal (NCLT) approval. These are specifically designed for small or closely held companies. However, the proposed I-T bill only grants tax neutrality to demergers while excluding fast-track ones from this benefit.
Bill restrictions
What the draft bill says
The draft bill restricts the tax neutrality to schemes undertaken through Sections 230-232 of the Companies Act, which need approval from the NCLT. As fast-track demergers under Section 233 don't go through NCLT but need clearance from a regional director, they fall outside this new definition. This means such transactions won't qualify for exemptions and will be subject to capital gains tax.
Expert opinions
Legal inconsistency introduced by new definition
Experts have raised concerns that the change not only raises the tax cost for genuine internal restructurings, but also introduces legal inconsistency between company and tax laws. Bhavin Shah, a Partner at Price Waterhouse & Co, said these concerns can be addressed without denying tax neutrality to all fast-track demergers. He warned that a blanket denial would force companies back to longer tribunal-driven processes.
Sectoral impact
Start-ups, MSMEs to be hit hard
The exclusion of fast-track demergers from a tax-neutral treatment is particularly concerning for start-ups, MSMEs, and group companies. These entities often use the fast-track demerger route for speed and cost efficiency. Sandeep Sehgal of AKM Global said this law creates a clear boundary that only court-approved schemes shall benefit from tax neutrality provisions. He warned it could create genuine hardship for intra-group restructurings among these businesses.