REMOVING DIFFICULTIES FACED BY TAX PAYERS

Facilitating demerger of Ind-AS compliant companies

One of the existing conditions for tax-neutral demergers is that the resulting company should record the property and the liabilities of the undertaking at the value appearing in the books of accounts of the demerged company. It has been represented that Indian Accounting Standards (Ind-AS) compliant companies are required to record the property and the liabilities of the undertaking at a value different from the book value of the demerged company. In order to facilitate, it is proposed to amend section 2 of the Act to provide that the requirement of recording property and liabilities at book value by the resulting company shall not be applicable in a case where the property and liabilities of the undertakings received by it are recorded at a value different from the value appearing in the books of account of the demerged company immediately before the demerger in compliance to the Indian Accounting Standards specified in Annexure to the Companies (Indian Accounting Standards) Rules, 2015.

This amendment will take effect, from 1st April, 2020 and will, accordingly, apply in relation to the assessment year 2020-21 and subsequent assessment years.

[Clause 3]

 

Tax-neutral demerger rules exempt Ind-AS valuation differences, allowing resulting companies to adopt Ind-AS values for transferred undertakings. The amendment exempts resulting companies from the requirement to record property and liabilities at the demerged company's book values where the assets and liabilities are recorded at different values solely due to compliance with Indian Accounting Standards specified in the Companies (Indian Accounting Standards) Rules, 2015, thereby permitting resulting companies to adopt Ind AS values for the undertaking received.