Will a tax adjustment save the sale of Air India?

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On Friday and Saturday, the Central Council of Direct Taxes (CBDT) provided a series of clarifications that could ease the privatization process of struggling public carrier Air India, ahead of the deadline for financial offers from selected bidders by September 15. . Mint explains:

Notice on transfer of fixed assets

In 2019, the government set up an ad hoc vehicle, Air India Assets Holding Ltd (AIAHL), for the transfer of debt and secondary assets of the Air India group. In a series of notifications on Saturday, CBDT said withholding tax (TDS) will not be applicable for the transfer of property and real estate by Air India Ltd to AIAHL. He also said the transfer of fixed assets from Air India Ltd to AIAHL under the plan approved by the Center would not be considered a transfer for income tax purposes. This would provide legal certainty and reduce Air India’s tax liability following privatization.

Clarification on carry-over of losses

Section 79 of the Income Tax Act means that following a change in the ownership of a business, the new owner cannot carry forward past losses and claim a refund of income tax. future profits. This would mean that the future owner of Air India will also not be able to claim tax cuts on the huge debt he will have by taking over the carrier. But the finance ministry clarified on Friday that the clause will not apply to strategic divestments when ownership passes from the government to a private company. The clarification of the CBDT means that bidders may be more willing to take on more debt with Air India and come up with higher enterprise value.

Who has expressed interest in bidding for Air India?

The Tata group is among the first to acquire the airline. According to media reports, SpiceJet chairman and chief executive Ajay Singh has also been shortlisted to bid for Air India as an individual. Mint could not independently verify this. The government does not make the shortlisted qualified bidders public until the process is complete.

How will the bidders decide the auction value?

Air India has accumulated losses of ??70 820 crore until March 31, 2020. The Center had initially decided to postpone ??23,000 crore in debt to the winning bidder. But in October last year, he said the bids would be based on the value of the company, giving bidders the freedom to decide how much debt they want to carry. The government has decided that the successful bidder will have to give it 15% of the value of the listed company in cash and carry 85% debt with Air India. The higher the value of the listed company, the better the chances of winning the auction.

What is the status of the divestment plan?

The Center has so far collected ??8,369 crore, against the divestment target of ??1.75 trillion for FY22. It sold its entire stake in Axis Bank held through the specified commitment of the Unit Trust of India (SUUTI) for ??3,994 crore and got ??3,654 crores and ??720 crore from the sale of shares in NMDC Ltd and Hudco Ltd, respectively. But with major divestments such as the privatization of Bharat Petroleum Corp. Ltd and the massive sale of LIC shares, the government hopes to achieve its target by March 31, 2022.

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