D. Murali

Chennai: Currently, the Income-tax Act, provides for benefit of carry-forward of tax losses in case of corporate restructuring only to an ‘industrial undertaking,’ and service industries, except IT (information technology) are not covered within the definition of industrial undertaking, observes Hiten Kotak, Executive Director, M&A Tax Practice, PricewaterhouseCoopers.

“Over the past few years service industries have contributed significantly to India’s GDP and are at a stage where consolidation is required to ensure continuous growth and increase financial, operational and delivery capabilities. Therefore the definition of industrial undertaking needs to be extended to cover service industries,” he argues, during a recent email interaction with Business Line.

Kotak, therefore, calls for the scrapping of provisions which disallow tax benefit (Section 80IA(12A)) on corporate restructuring, to encourage consolidation and investment.

Concept of tax grouping is prevalent in many countries and should be introduced in India as well, to reduce tax burden of companies, increase their financial resources and make them more competitive, he reasons.

“In case of overseas subsidiaries of Indian companies there is economic double taxation because Indian companies are taxed on dividends received from overseas subsidiaries, received through intermediary holding companies, without receiving any credit for foreign taxes paid by the overseas operating subsidiary (only tax treaties entered into by India with Mauritius and Singapore provide for underlying tax credit).” Such dividends, says Kotak, should be exempted or underlying tax credit should be provided in respect of the same.