New Delhi: As the tax liability of companies undergoing mergers and acquisitions (M&A) may increase in recent years, the Central Board of Direct Taxes (CBDT) has notified a new set of rules on tax treatment of goodwill where Goodwill is applicable.

The move is expected to impact pharma, life sciences, start-ups lining up for IPOs which have seen a lot of M&A activities in the past and have goodwill without much depreciation of its valuation. In all such cases, the goodwill shall exceed the written down value of the WDV computed in accordance with the new rules and such excess shall be recovered from STCG.

The CBDT notification said that in cases where the sole asset in the block was goodwill, there would be no tax effect, but in other cases, where the value of net goodwill removed from the block is more than the opening WDV. April 1, 2020, now such excess will be offered to tax as STCG. The move is expected to impact pharma, life sciences, start-ups lining up for IPOs which have seen a lot of M&A activities in the past and have goodwill without much depreciation of its valuation. In all such cases, the goodwill shall exceed the WDV calculated as per the new rules and such excess shall be recovered from STCG.

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