In order to make disinvestment deals of ailing state-owned firms more attractive for strategic investors, the government on Friday allowed erstwhile public sector companies to carry forward losses to be set off against future profits.
The Central Board of Direct Taxes (CBDT) in a clarification said that Section 79 of the Income Tax Act shall not apply to an erstwhile public sector company which has become so as a result of strategic disinvestment.
“Accordingly, loss incurred in any previous year prior to, and including, the previous year of strategic disinvestment shall be carried forward and set off by the erstwhile public sector company,” the CBDT under the Finance Ministry said in a statement The relaxation, it added, will cease to apply from the previous year in which the company, that was the ultimate holding company of such erstwhile public sector company immediately after completion of the strategic disinvestment, ceases to hold 51 per cent of the voting power of the erstwhile company.
Section 79 of the Income Tax Act deals with carry forward and set off of losses in case of companies.
“In order to facilitate strategic disinvestment, it has been decided that Section 79 of the Income-tax Act, 1961, shall not apply to an erstwhile public sector company which has become so as a result of strategic disinvestment,” it said.
Necessary legislative amendments for the above decision shall be proposed in due course of time, the statement said.
Suraj Nangia, Head, Nangia Andersen, a government and public sector advisory, said “Under normal tax provisions without this relaxation, past losses of a company are not allowed to be set off if there is change in majority shareholding of a company (i.e. 51 per cent).”
“It may be noted that such relaxation will be available only till the strategic investor retains at least 51 per cent in the PSU after takeover. In case the strategic investor’s shareholding falls below 51 per cent, such relaxation will be withdrawn,” he added.
The ambitious divestment pipeline also includes Air India, a loss-making national carrier, for which the deadline for submission of financial bids is September 15.
The government will be selling budget airline Air India Express and Air India’s 50 per cent stake in Air India SATS Airport Services Private Limited (AISATS) besides offloading its entire stake in loss-making Air India.
The deadline for submission of Expressions of Interest (EoI) or preliminary bids was extended five times earlier before closing it in December last year.
Finance Act, 2021 has amended section 72A of the Income-tax Act, 1961 that deals with amalgamation of a public sector company (PSU) which ceases to be a PSU (erstwhile public sector company) as part of strategic disinvestment, with one or more company or companies and carry forward of losses in case of change in shareholding following sale by the government.
The Centre budgeted Rs 1.75 lakh crore from stake sale in public sector companies and financial institutions, including 2 PSU banks and one insurance company, in the current fiscal year.
As part of the privatisation strategy, the government aims to complete the strategic sale of Bharat Petroleum Corporation Ltd (BPCL), Shipping Corp, Container Corporation, Neelachal Ispat Nigam Ltd, Pawan Hans and Air India, among others, by March 2022.
So far, in this financial year, Rs 8,368 crore has been mopped up through minority stake sales in PSUs and the sale of SUUTI (Specified Undertaking of the Unit Trust of India) stake in Axis Bank.
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