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To enable AI divestment to take off, FinMin notifies 5 changes in I-T law

Shishir Sinha New Delhi | Updated on September 12, 2021

Changes cover transfer of assets to SPV, carrying forward accumulated losses

Ahead of the due date for the submission of financial bids by suitors for Air India, the Finance Ministry has notified five changes in income-tax rules to facilitate the strategic disinvestment.

The due date for submission of financial bid is September 15.

One notification relates to exemption of tax deducted at sources (TDS) under the newly inserted section of 194Q of the Income Tax Act. The notification says Air India Assets Holding Ltd (AIAHL) will not be considered a ‘buyer’ for the purpose of the new section in case of transfer of goods by Air India to it under a plan approved by the Centre. AIAHL is an SPV set up with effect from January 22, 2018 to implement the strategic disinvestment. Its objective is to acquire the non-core assets of Air India, its subsidiaries and certain immovable properties of AI. Also, debt amounting to over ₹22,000 crore has also been transferred to AIAHL.

The new section applies to any buyer who is responsible for paying any sum to any resident seller for purchase of any goods of the value or aggregate of value exceeding ₹50 lakh. The buyer, at the time of credit of such sum to the account of the seller or at the time of payment, whichever is earlier, is required to deduct an amount equal to 0.1 per cent of such sum exceeding ₹50 lakh.

CBDT clarifies

Changes in terms of Air India have been made effective from July 1, 2021. The Central Board of Direct Taxes (CBDT) clarified that no one will be adversely affected by the retrospective application.

The second notification relates to the exemption from tax collected at source (TCS) under Section 206C(1H). The notification says Air India will not be considered as ‘seller’ under the said section in relation to transfer of goods by it to AIAHL. This section prescribes TCS to be collected by the seller from the buyer at the rate of 0.1 per cent of the sale consideration exceeding ₹50 lakh.

The third notification relates to Section 47 of the Income Tax Act which prescribes what kind of transaction is not regarded as a transfer. Here, the transfer of capital asset under plan approved by the Central Government from Air India Ltd to AIAHL will not be treated as transfer. This notification will come into effect from Assessment Year 2022-23.

The fourth notification will enable no deduction of tax under Section 194-IA on any payment made to Air India for transfer of immovable property to AIAHL. This section prescribes TDS at the rate of 1 per cent on transfer of certain immovable property other than agricultural land for a consideration of more than ₹50 lakh.

The fifth notification relates to losses to be carried forward. According to the a new clause, the loss incurred in any previous year prior to, and including, the previous year of strategic disinvestment shall be carried forward and set off by the erstwhile public sector company. However, as soon as buyers’ holding comes below 51 per cent, this relaxation will cease to apply.

Air India is suffering heavy losses since its merger and has accumulated losses of about ₹70,820 crore till March 31, 2020.

Published on September 11, 2021

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