The above has been made possible with constant liberalization and amendments in the tax and regulatory framework, more specifically FEMA, FDI, SEBI and other regulations. There are however a few areas where enabling provisions can make the tax and regulatory framework more attractive for businesses/ investors. One such area relates to taxability in India on overseas restructurings.
Read our full Budget 2026 coverage here
Envisage a situation (quite common) where an Indian company is held by an overseas company either directly or through an intermediate company(ies). In an event of a global re-organization involving a merger of an overseas entity (say F Co 1) (holding Indian entity shares either directly or indirectly) with another overseas entity (say F Co 2), there would be a direct/ indirect transfer of shares of the Indian entity from the F Co 1 to F Co 2. From an income-tax perspective, taxability in India needs to be examined from two perspectives. One, on the transfer of shares of the underlying Indian entity from F Co 1 top F Co 2. And two, on the shareholders of F Co 1 becoming shareholders of F Co 2 (since they hold the underlying Indian asset).
Under the Income Tax Act, 1961, capital gains arising from mergers or amalgamations of Indian companies are generally tax-neutral, and this exemption extends to shareholders of the amalgamating Indian entity who receive shares in the amalgamated company. Consequently, domestic mergers are largely tax-neutral for both companies and their shareholders, provided the specified conditions are met.
The Act provides similar tax-neutrality for the transfer of shares of an Indian company from F Co 1 to F Co 2 subject to the condition that at least 25% of the amalgamating company’s shareholders remain shareholders in the amalgamated company and the transfer is not taxed in the country of the amalgamating company’s incorporation. However, there is no specific provision for tax-neutrality in India to the shareholders of F Co 1 who become shareholders in F Co 2. This seems unintended given the specific exemption provided to F Co 1 on transfer of shares of Indian company to F Co 1 pursuant to the overseas merger.
Also Read| Union Budget 2026: Esops tax pause may be opened to more startupsThe above is indeed a unique situation where the shareholders of F Co 1 (which could be corporate or individual shareholders) could be sought to be taxed in India for an otherwise capital gains exempt transfer (both in India and abroad). This seems inadvertent and avoidable and it would be In order, that the provisions of Income Tax Act, 2024 (which has similar provisions as the 1961 Act) are amended to address this anomaly. In fact, this provision (along with the proposed suggested amendment) should be considered to be expanded to all forms of global restructuring (eg, hive offs/ demergers) and not just amalgamations.
Another aspect that could potentially be considered for amendment in the income-tax law relates to the taxability of overseas restructuring (amalgamation/ hive off or demerger etc) of a subsidiary of an Indian company. Assume a situation where an Indian company has multiple overseas subsidiaries. In the event of an international re-organization of overseas entities, say F Co A merging into F Co B, there is no capital gains tax neutrality/ exemption provided for such merger for Indian owned foreign subsidiaries. Consequently, transfer of business of F Co A to F Co B would be taxable in India. Such global re-organizations are now increasing common for Indian owned businesses as well. Therefore, in the spirit of maintaining tax neutrality of such internal group reorganizations which is also aligned with international practices, it would be in order if such reorganizations by Indian owned businesses are also considered for tax neutrality subject to necessary safeguards.
Also Read| Budget 2026: A top-up on tax reforms can shore up consumer confidence
As India positions itself as a global hub for capital, innovation and corporate headquarters, the tax framework must evolve to support modern cross-border restructuring needs. Providing clear exemptions and practical guidance for overseas reoranizations will not only remove ambiguity but also enhance ease of doing business. With the upcoming Union Budget, a rationalisation of these provisions would be a timely and strategic step towards strengthening India’s attractiveness as a premier jurisdiction for global corporate realignment.
The author is Partner, Deloitte India