Clause 33 and 34 of the Finance Bill 2023 has proposed amendments in Sections 72A and 72AA of the Income Tax Act to facilitate certain strategic disinvestments, by allowing carry forward and set-off of their losses, including of IDBI Bank.
1. Section 72A of the Income Tax Act allows for the carryover and set-off of accumulated loss and unabsorbed depreciation in the event of a merger or demerger. Section 72A(1) states that in certain circumstances, the amalgamating company’s accumulated loss and unabsorbed depreciation shall be deemed to be the amalgamated company’s accumulated loss and unabsorbed depreciation for the previous year in which the amalgamation was implemented. Certain conditions have also been prescribed therein to facilitate the carry forward and set off of loss and unabsorbed depreciation in the case of strategic disinvestment, i.e. where the Central Government or any State Government sells its shareholding in a public sector company, resulting in a reduction of its stake below 51%, followed by control transfer to the buyer.
2. Section 72AA of the Income Tax Act deals with the carry forward of accumulated losses and unabsorbed depreciation in certain cases, including the amalgamation of one or more banking companies with any other banking institution.
3. In order to facilitate further strategic disinvestments, Finance Bill 2023 proposes to amend the definition of “strategic disinvestment” in section 72A of the Income Tax Act to provide that strategic disinvestment shall mean the sale of a shareholding by the Central Government, a State Government, or a Public Sector Company in a public sector company or a company that results in,-
(i) reducing its shareholding to less than 51%, and
(ii) control is transferred to the buyer.
4. The first condition applies if the shareholding was greater than 51% prior to the sale of the shareholding. The Central Government, State Governments, or Public Sector Companies may carry out the control transfer requirement (or any two of them or all of them).
5. It is also proposed to amend section 72AA of the Income Tax Act to allow carry forward of accumulated losses and unabsorbed depreciation allowances in the case of a merger of one or more banking companies with another banking institution or a company following a strategic disinvestment, if the merger occurs within 5 years of the strategic disinvestment.
6. This amendment will go into effect on April 1, 2023, and will apply to assessment years 2023-24 and onwards.
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