Mergers and Acquisitions in India: Analysis

Note by Author

I was recently working on an assignment where two giants had proposed me to make a merger plan for them from taxation point of view and there is a very sensitive process for the same, so after the research I decided to let’s share it with you all. Happy reading

Introduction

In Introduction I will discuss the strategic role of M&A, as India is rapidly growing after the startup culture introduced by our government, business environment is globalised, which made mergers and acquisitions no longer the optional strategies, like for example, do you think it was optional for Vodafone to merge with idea? No right, this move was a survival strategy for both the companies.

M&A is the core corporate tools for survival, expansion, diversification, market entry, gaining a competitive advantage, as well as for cost optimisation. A well-structured M&A transaction can help businesses in attaining the tax efficiency, adopting operational synergies, as well as fasten their growth, but execution is bit tough dueto complicated corporate laws, competition laws, securities regulations, taxation rules, and many procedural formalities, failure to take care for all these elements may result in tax leakage, regulatory hurdles, or even deal collapse.

In this article I would like to share my experience with the procedure relating to taxation, maintaining utmost confidentiality and keeping my ethics in my mind.

Primary methods of acquisition

This is specifically with legal and taxation perspective, as being a Chartered Accountant, we were hired for this perspective only.

First method is, share purchase that means acquisition of controlling interest through the purchase of equity shares of the target company, may be after talking over a table or even hostile takeover. With taxation perspective, if the shares are listed then long-term capital gains is taxed at 12.5% beyond Rs. 1.25 lakh u/s 112A while in the case of unlisted shares, the LTCG taxed at 20% while the regulatory Compliance for listed companies is the application of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (SAST) which may trigger mandatory open offer while FEMA approval or reporting under FEMA (Non debt instruments) Rules, 2019 is required for the cross-border deals.

In Daiichi Sankyo Co. Ltd. Versus Jayaram Chigurupati - 2010 (7) TMI 289 - Supreme Court a judgement of Supreme Court, the court clarified “control” interpretation under SEBI takeover norms, critical in determining open offer obligations.

Here I want to give very famous example of 2022 when Zomato acquired Blinkit, it was through a share-swap deal, giving Blinkit shareholders Zomato shares in exchange. This structure avoided upfront cash payout and utilised SEBI-compliant share issue mechanisms. Taxation was handled under Section 47(vii) exemption for share-for-share swaps in amalgamations.

Note: Section 47(vii) of Income act, deals with the transfer by a shareholder, in a scheme of amalgamation, of the shares held by him in the amalgamating company.

The second method is, slump sale which means transferring an entire business undertaking as a going concern for a lump sum consideration, without valuing the individual assets. As per my opinion, with the taxation point of view, it is the least efficient route as profit is taxed under Section 50B, often resulting in high taxable amounts due to low book values of depreciated assets as long-term gains attract 20% plus surcharge and cess, while short-term gains are taxed at corporate rates up to 30% plus surcharge and cess (effective 34–36%). With no exemption like mergers and added stamp duty costs, slump sale becomes the most tax-heavy transfer method despite GST exemption on-going concerns.

Though when I talk with GST point of view I would like to mention CBIC Circular No. 177/09/2022-GST which clarified that GST will not be applied on slump sale of a going concern, but the stamp duty is applicable on immovable assets.

In Triune Projects Private Limited Versus Deputy Commissioner of Income Tax - 2016 (12) TMI 408 - DELHI HIGH COURT it was stated that gains from slump sale  are capital in nature, not business income.

Here I want to give an example of Reliance Retail which entered into an agreement to acquire Future Group’s retail business as a going concern. Though it was challenged legally, the structure initially adopted was slump sale as they wanted simplicity in asset transfer.

Third one is NCLT approved amalgamation or merger as per Sections 230–232 of Companies act, 2013 as the statutory merger sanctioned by NCLT or the national company law tribunal.

There are many tax benefits if this method is resulting in merger and acquisition like as per section 47(vi) which states the capital gains exemption for asset transfers between amalgamating and amalgamated Indian companies, Section 47(vii) which states exemption for shareholders receiving shares in amalgamation, Section 72A  which is relating to the carry forward of accumulated losses and unabsorbed depreciation for remaining years subject to conditions, and with GST point of view the transfer of going concern not taxable.

In Marshall Sons And Company (India) Limited Versus Income-Tax Officer - 1996 (11) TMI 6 - Supreme Court states that amalgamation is effective from the date when it is approved by NCLT or any court.

Let me give you example of the year 2018, when vodafone India and idea cellular merged under an NCLT approved scheme, creating India’s largest telecom operator by subscribers at the time. This route helped both companies in tax neutral asset transfer, carry forward of losses under Section 72A, and automatic transfer of spectrum licences.

Fourth one is asset purchase which means selective acquisition of certain assets and liabilities, under taxation asset-wise capital gains are taxed as per sections 48/50 of Income tax act and GST is applicable depending on asset type.

Note: Section 48 gives the normal method to calculate capital gains by deducting the purchase cost and transfer expenses from the sale price, while Section 50 is a special rule for depreciable assets where gains are always treated as short-term and calculated on the block of assets without indexation, often leading to higher tax liability.

In Commissioner of Income-Tax Versus Electric Control Gear Manufacturing Company - 1997 (7) TMI 8 - Supreme Court it was clarified capital nature of asset transfer vs their revenue nature.

Like when Reliance Jio acquired a majority stake in Saavn through a mix of asset transfer and shareholding acquisition, rebranding it as JioSaavn. In this agreement, the licensing rights to music catalogue were transferred as assets, while operational control came via shareholding.

As we discussed above, you might got to know the reason, why NCLT approved mergers are the most tax efficient, as the way they enjoy capital gains exemption as per Sections 47(vi) & (vii) which ensure no capital gains for both companies and shareholders, Section 72A allows carry forward of past losses to specific term also the assets, contracts, licences, and employees transfer are done seamlessly.

In CIT v. Mahindra Sintered Products Ltd. [(1998) 233 ITR 260 (SC)] carry forward of losses were allowed under Section 72A.

Let’s summarise them with a table

Case Studies

Vodafone Idea merger (NCLT approved amalgamation)
This 2018 deal, valued at approximately Rs. 1.5 lakh crore, was executed under Sections 230–232 of the Companies Act, 2013, with NCLT approval. As discussed in the NCLT merger section above, such structures benefit from multiple tax exemptions under Sections 47(vi), 47(vii), and the ability to carry forward losses under Section 72A. For Vodafone–Idea, this ensured seamless transfer of spectrum licences, GST neutrality, and significant operational synergies.

Hence, we learned that, in telecom and other licence-heavy sectors, NCLT-approved mergers safeguard statutory permissions while enabling tax efficiency.

Jio-Saavn integration (hybrid of asset purchase & share acquisition)
In this transaction, Reliance Jio acquired a majority stake in Saavn through a combination of asset transfer (notably licensing rights to music catalogues) and shareholding acquisition. As explained in the asset purchase section, capital gains exemptions were not available, and stamp duty was payable on the IP assignment.

Hence, we learned that, Hybrid structures are well-suited for media/tech companies where intellectual property and brand value dominate, but tax planning must consider Section 48/50 implications and indirect tax on asset classes.

Tata Group’s air india acquisition (direct share purchase)

Tata Sons acquired Air India via a direct share purchase from the Government of India, taking over both assets and liabilities. As outlined in the share purchase method above, capital gains exemptions applied to the government seller under specific provisions, but for the buyer, the primary advantage was the immediate control over operating licences, bilateral rights, and international slots.

Hence, we learned that, direct share purchases are often the fastest route where regulatory continuity is critical.

Zomato-Blinkit deal (share swap amalgamation)

This 2022 transaction used a share-swap model, where Blinkit shareholders received Zomato shares instead of cash. The deal was compliant with SEBI’s share issue regulations and enjoyed Section 47(vii) capital gains exemption for the shareholders, aligning perfectly with the NCLT merger tax benefits discussed earlier.

Hence, we learned that, startups can preserve cash flow and align investor interests by structuring acquisitions through equity swaps.

Importance of valuation

Though, I tried to cover taxation perspective by this article, but in any M&A transaction, the success of legal structuring and tax planning depends on proper and right valuation, right due diligence, and a well-defined financing strategy. Valuation methods like as Discounted Cash Flow, Comparable company analysis, and Precedent transaction multiples are critical in determining a fair purchase price and in justifying it to regulators, investors, and auditors.

Due diligence extends beyond financial statements to cover legal compliance, contractual obligations, tax exposures, intellectual property rights, employee liabilities, and potential litigation risks, thereby preventing post-deal surprises. Financing structures, whether through cash, share swaps, debt funding, or a combination thereof, influence not only the cost of capital but also the tax efficiency in the deal and the impact on balance sheet of the company. Integrating these three elements at the planning stage ensures that the transaction is not only compliant but also financially sustainable and strategically aligned.

Conclusion

M&A transactions in India require multi-disciplinary execution, corporate law, tax strategy, securities regulation, and operational integration must all align. While each method has merit, NCLT-approved mergers often emerge as the most tax-efficient and operationally seamless route, especially for large-scale strategic combinations.

However, as Vodafone-Idea shows, post-merger integration is just as critical as legal structuring to ensure the strategic benefits are realised.

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