The Centre is likely to give a fillip to corporate mergers and acquisitions by extending tax breaks on such activities at a lower threshold of 50 per cent share transfer to the acquirer compared to 75 per cent now.
According to government officials, simplification of the income tax provisions under Section 2 (1B) and demerger provisions under Section 2 (19AA) are being examined by the Central Board of Direct Taxes.
These sections stipulate that any tax benefits like setting off losses will not be allowed unless 75 per cent of a company's shareholding is passed on to the acquirer.
The CBDT has already set up an internal group to examine the provisions on mergers and demergers, and its recommendations are expected to be incorporated in the Budget proposals for 2003-04.
The issues are also significant, with the government pushing ahead with the divestment of sick public sector undertakings.
Officials said without the incentive of treating acquisition cost as a deductible expense, it would be difficult to put PSUs on the block and attract bidders from the private sector.
Under the Income Tax Act, acquisition costs do not qualify for bona fide tax deduction unless there is a 100 per cent transfer of assets to the buying company.
The committee is also expected to reckon on the possibility of extending Section 72A of the I-T Act to mergers and acquisitions in the financial sector.
Currently, the benefits including carry-forward and provisions for accumulated losses, as well as those for unabsorbed depreciation, are applicable only to manufacturing companies.
But given the government's encouragement for mergers of banks in the public sector, the clause has come under fire.
The section was expanded to cover the telecommunications sector in last year's Budget and there was a case for extending it to financial and other services, sources said.
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