Budget 2018: Government may consider resolving tax issues in insolvency deals

The government may consider resolving some of the biggest tax hurdles stopping successful conclusions of insolvency processes in the upcoming Union Budget, according to a report by The Economic Times.

The report states that the government is mulling changes by which buyers of companies in the insolvency process will be allowed to carry forward losses for eight years, which is not allowed under the current tax code.

The government is also likely to address industry's fears of the Income Tax (IT) Department challenging valuations after conclusion of such deals.

"The government allowed carrying forward of losses for eight years for the startups last year. Similar exception is being considered for deals happening in insolvency," a source told the newspaper.

The report cites industry trackers as saying that the tax outgo could be higher if the buyers of insolvent companies are unable to carry it forward on their balance sheets.

Paras Savla, partner, KPB & Associates, told the newspaper: "Section 79 of the IT Act specifically states that losses cannot be carried forward if majority shareholding changes hands. The government had given a leeway to startups from this section and the same could also be done for companies under Insolvency and Bankruptcy Code, otherwise, it may lead be huge tax liability."