BUSINESS REORGANISATION WHY??

Releasing excess cash Business synergies size and dominance

Unlocking business focus on core business

Entity rationalisation simplification of structure Family arrangements Global acquisition Achieving tax efficiency

BUSINESS REORGANIZATION TAX CONCESSIONS

CONVERSION OF PROPERIETORY CONCERN/FIRM INTO A COMPANY Section 72A(6): Set Off and Carry Forward: Where there has been reorganisation of business and a firm is succeeded to by a company fulfilling the conditions laid down in the proviso to clause (xiii) of section 47, then, the accumulated loss and the unabsorbed depreciation of the predecessor firm, shall be deemed to be the loss or allowance for depreciation of the successor company for the purpose of previous year in which business reorganisation was effected. If any of the conditions laid down in the proviso to clause (xiii) to section 47 are not complied with, the set-off of loss or allowance of depreciation made in any previous year in the hands of the successor company, shall be deemed to be the income of the company chargeable to tax in the year in which such conditions are not complied with.

CONDITIONS TO BE COMPLIED S. 47(XIII/XIV)

All assets & liabilities of Prop or partnership firm become assets & liabilities of the Co. All partners become shareholders of company in the same proportion in which their capital accounts stood in the books of the firm on the date of succession Shareholding in either case should not be less than 50% of the total voting power Lock in period Sole proprietor or partners not to receive any consideration or benefit directly or indirectly, in any form or manner, other than by way of allotment of shares in the company Bonds, debentures, etc. not possible Non-compliance of conditions triggers taxation chargeable profits and gains taxed in the hands of the successor company in the year of contravention - S.47A(3) of the ITA

CONDITIONS TO BE COMPLIED S. 47(XIII/XIV)

Accumulated loss and unabsorbed depreciation allowance of Prop transferred to successor company S.72A(6) no separate conditions to be complied with Non-compliance of conditions contained in S.47(xiv) will result in the loss and depreciation amount set off earlier being regarded as income of the year in which contravention is made

CONVERSION OF A PVT COMPANY/UNLISTED COMPANY INTO A LIMITED LIABILITY PARTNERSHIP

TAXATION AND OTHER BENEFITS LLPs are taxed like general partnership firms. LLPs pay an effective tax of 30.9%. They are exempted from 10% surcharge. LLPs tax payment is lower than that of companies, which pay a 33.99% tax on profits. The tax will be imposed only on 40% of the LLP.s income, since the firm will be allowed to pay the balance 60% to the partners as remuneration. This means, the partners will have to pay tax on the amount paid to them. So, there will be no double taxation of income. Tax Audit is not required unless capital exceeding Rs. 25 lakh or turnover exceeding Rs. 40 lakh. Unlike Companies, no requirement for payment of Corporation Tax on distribution of income among partners and there is no requirement as to Minimum Alternate Tax

All the assets and liabilities of the Company immediately before the conversion become the assets and liabilities of the LLP

CONVERSION OF A PVT COMPANY/UNLISTED COMPANY INTO A LIMITED LIABILITY PARTNERSHIP

TAXATION AND OTHER BENEFITS All movable and immovable properties of the company automatically vest in the LLP. No instrument of transfer is required to be executed and hence no stamp duty is required to be paid. No Capital Gains tax shall be charged on transfer of property from Company to LLP. The accumulated loss and unabsorbed depreciation of Company is deemed to be loss/ depreciation of the successor LLP for the previous year in which conversion was effected. Thus such loss can be carried for further eight years in the hands of the successor LLP.

BUSINESS REORGANISATION OF COOPERATIVE BANKS

Accumulated loss and unabsorbed depreciation allowance in business reorganization of cooperative banks (Sec 72AB, w.e.f. A.Y. 2008-09) The successor cooperative bank can set off and carry forward loss and depreciation allowance of the predecessor cooperative bank if following conditions are satisfied:A. The predecessor has been engaged in the business of banking for three or more years . B. The Predecessor has held at least of the book value of fixed assets of the predecessor acquired through business reorganization, continuously for a minimum period of 5 years immediately succeeding the date of business reorganization. C. The successor continues the business of the predecessor for a minimum period of 5 years from the date of business reorganization. D. The successor fulfills such other conditions as may be prescribed.

DEMERGER
Following tax concessions are available to any DEMERGER if this takes place within the meaning of section 2(19AA) of the Income Tax Act. These concessions are on similar lines as available in case of amalgamation. 1. Tax concessions to demerged company : a. Capital gains tax not attracted Section 47(vib) b. Tax concessions to a foreign demerged company Section 47 (vic) i) at least 75% of the stakeholders of the demerged foreign company continue to remain shareholders of the resulting foreign company and ii) such transfer does not attract tax on capital gains in the country, in which the demerged foreign company is incorporated. c. Reserve for shipping business : Where a ship acquired out of the reserve is transferred in a scheme of demerger, even within the period of eight years of acquisition there will be no deemed profits to the demerged company.

DEMERGER..CONTD
Following tax concessions are available to any DEMERGER if this takes place within the meaning of section 2(19AA) of the Income Tax Act. These concessions are on similar lines as available in case of amalgamation. 2. Tax concessions to the shareholders of the demerged company [Sec 47 (vid) ]: Existing shareholder of the demerged company will now hold a. Shares in the resulting company and b. Shares in the demerged company Cost of acquisitions of shares in the demerged company [section 49(2D)] : The cost of acquisition of the original shares held by the shareholder in the demerged company shall be deemed to have been reduced by the amount as so arrived at under section 49(2C) above.

DEMERGER..CONTD
Following tax concessions are available to any DEMERGER if this takes place within the meaning of section 2(19AA) of the Income Tax Act. These concessions are on similar lines as available in case of amalgamation. 3. Tax concessions to the resulting company : Subject to satisfying all conditions in section 2(19AA) a. Expenditure for obtaining license for tecommunication b. Treatment of preliminary expenses c. Treatment of bad debts d. Amortisation of expenses (1/5th every year) e. Carry forward and set off losses and depreciation and unabsorbed depreciation of the demerged company.

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