Income Tax Act, 2002

Provided that if the entity that ceases to exist upon merger has any undeducted loss, such loss shall be deducted in equal installments over the next seven years. If the entity deducting the loss in this manner is divided again before fully deducting the entire loss, the amount deducted as loss shall be subject to tax at the rate of tax prevailing in the fiscal year of merger (merger or acquisition) on the amount deducted.

(2) Where assets and liabilities are disposed of due to the merger of entities under sub-section (1), the following shall apply:-
(a) In the case of disposal of trading stock and business assets:-
(1) that person shall be deemed to have received an amount equal to the net outgoings in respect of such asset immediately before the disposal for that disposal; and
(2) the person acquiring the asset shall be deemed to have incurred a cost equal to the amount mentioned in sub-clause (1).
(b) In the case of disposal of depreciable assets:-
(1) that person shall be deemed to have received an amount equal to the residual value of the declining balance of the group under section 4 of Schedule 2 at the time of disposal for that disposal; and
(2) the person acquiring the asset shall be deemed to have incurred a cost equal to the amount mentioned in sub-clause (1).
(c) In the case of disposal of liabilities:-
(1) that person shall be deemed to have incurred a cost for that disposal equal to the lower of the market value and the net receipts of such liability immediately before the disposal; and
(2) the person assuming the liability shall be deemed to have received an amount equal to the amount mentioned in sub-clause (1) for assuming such liability.
(d) When calculating the cost of assets and liabilities merged, the entity that merges or the entity resulting from the merger shall calculate under clauses (a), (b), and (c) only the cost in respect of assets and liabilities that existed during the operation of the merged business by the merging entity (prior to the merger or acquisition).
(3) In the case of an additional lump sum payment (other than payments made through a retirement fund or payments required under employee service conditions) made for the purpose of granting collective retirement to employees working in the entity that is disposed of by merger or the entity after merger under sub-section (1), tax shall be deducted at a rate with a fifty percent reduction from the tax deduction rate applicable to such payment.
(4) If shareholders of the entity that is disposed of by merger under sub-section (1) dispose of their shares by way of sale within two years of the merger, no capital gains tax shall be levied on the gain on such disposed shares.
(5) No tax shall be levied on dividends distributed by the entity that is disposed of by merger under sub-section (1) to shareholders existing at the time of merger within two years of the merger date.
(6) Entities of the same class wishing to merge and be disposed of under sub-section (1) Deleted by the Finance Act, 2080. shall submit a letter of intent to merge Deleted by the Finance Act, 2080. to the Department by the end of Ashadh 2079.
(7) Entities that submit a letter of intent under sub-section (6) for merger under sub-section (1) shall complete the merger process by the end of Ashadh 2080 Amended by the Finance Act, 2078..
(8) Entities that merge with each other after the commencement of this section and have not availed the facility under this section may also avail the facility under this same section.
(9) In the case of entities that do not submit a letter of intent within the period specified in sub-section (6) and entities that do not complete the merger process by the date mentioned in sub-section (7), the provisions of this section shall be deemed not to have applied.