Pharma Firms, startups to face tax liability on new CBDT rules

NEW DELHI: In what may increase the tax liability of companies that have undergone mergers and acquisitions (M&A)  in recent years, the Central Board of Direct Taxes (CBDT) has notified a new set of rules on the tax treatment of goodwill where goodwill is applied.

The move is expected to impact companies in the pharma, life sciences, start-ups lining for IPO that have seen lot of M&A activities in the past and carry goodwill without much deprecation of its valuation. In all such cases, goodwill will fall much above the written down value WDV computed as per the new rules and such excess would be charged to STCG.

The CBDT notification had said that in cases where goodwill was the only asset in the block, there won't be any tax impact, but in others, where the value of net goodwill removed from the block is in excess of the opening WDV as on April 1, 2020, such excess will now be offered to tax as STCG. The move is expected to impact companies in the pharma, life sciences, start-ups lining for IPO that have seen lot of M&A activities in the past and carry goodwill without much deprecation of its valuation.  In all such cases, goodwill will fall much above the WDV computed as per the new rules and such excess would be charged to STCG.

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