From a transaction tax perspective, implementation of the key proposals in the Budget 2021 would have an impact on valuations in M&A. Goodwill is proposed to be excluded as a depreciable asset and depreciation claim on any past goodwill in prior years will not be available going forward. Additionally, its proposed to cover slump exchange under tax framework for slump sale.

Availability of depreciation on acquired goodwill has often been a subject matter of debate. The Finance Bill, 2021 (Bill) proposes to settle the law and exclude goodwill as a depreciable asset. The proposed changes would include goodwill acquired pursuant to an earlier transaction and hence depreciation claim would not be allowed post amendment. Another important proposal is the change in the definition of slump sale. There have been cases where business transfers are carried out for a non-cash consideration thereby treating them as slump exchange and hence not taxable. The proposals seek to amend the definition of slump sale to include all forms of transfers and rope within its ambit slump exchange. 

We discuss some of these developments below.

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