The Union Budget next month is likely to bring tax SOPs for start-ups. The proposal in the Budget will offer to carry forward of losses and accumulated depreciation during mergers and acquisitions as a way to incentivise and promote consolidation in the start-up environment, a media report said.
The proposal in particular is aimed at the organised service and retail segments. It is currently not a definitive part of the upcoming project, but is being explored by Ministry of Finance officials for consideration, two people with knowledge of the matter told Mint.
The Centre may want to encourage consolidation in the emerging services sector to allow companies to reach the necessary scale where they can compete with global rivals. Companies in manufacturing and shipping sectors already get to enjoy carry forward losses and unabsorbed depreciation in the 7-8 years following a merger or acquisition, which allows them to offset the tax burden considerably by setting off their losses against income generated.
However, this proposition has not been available to start-ups in the retail and services sector. M&A for companies operating in the segment are tax heavy because of the potential tax burden after the amalgamation process is completed.
The Confederation of Indian Industry (CII) has already asked for SOPs like carrying forward losses, setting off previous losses against income, and unabsorbed depreciation under Section 72A of the Income Tax Act, be extended to start-ups. The body also stated that this can be done under approval from the Central Board of Direct Taxes institutes an expert committee on the same matter.
"Carry forward of losses in all types of amalgamations and demergers should be provided for. This would give greater flexibility on mergers and demergers,” Amrish Shah, Partner, Tax, Deloitte India when talking about some of the expectations from Budget 2022.
The service sector is the largest sector of the economy, accounting for a significant portion of the economy, and one of the fastest-growing not just in India but the world.
