Income Tax on Goodwill of Pharma and other company, CBDT made new rules

If a company has recently acquired a new firm, then it must know the new rules of CBDT (Central Board of Direct Taxes). CBDT has notified new rules for computing Goodwill and Short Term Capital Gains (STCG) of the company. The new rules will apply where depreciation has been taken in Goodwill.

For this, the government has amended the Income Tax Act through the Finance Act 2021. With the introduction of new rules, those companies which have recently been acquired or merged will have to pay more tax. Not only this, due to the change in the Act, Goodwill will no longer be considered an Intangible Asset and deprivation will not be applicable from April 2020.

Pharma companies will increase liability

According to Tax Expert and CA Arvind Kumar Dubey, Intangible Asset can be understood in such a way that it is not intangible form but still Depreciation has been taken through it. Due to this change, the tax liability of companies in the Pharma and Life Science sector may increase. They may have to pay tax on STCG.

CBDT changed another rule

Earlier CBDT had changed another rule. According to this, companies that have purchased shares or commodities of any value (even the value of more than Rs 50 lakh) in the course of trading on a recognized stock exchange or commodity exchange will not be required to deduct tax at source (TDS) on the transaction.

Provision of deduction of tax at source applicable from July 1

The Income Tax Department has implemented the provision of deduction of tax at source from July 1. This will be applicable to companies with a turnover of more than Rs 10 crore. Such units are required to deduct TDS of 0.1 percent on payment of purchases of goods exceeding Rs 50 lakh from a resident in a financial year.

Not applicable to transactions in shares or commodities

The CBDT said that this provision will not apply to transactions of shares or commodities through stock exchanges. The Income Tax Department said it has received representations that there are practical difficulties in implementing the provisions of TDS under section 194Q of the Income Tax Act in transactions through certain exchanges and clearing corporations. Many times in such transactions there is no contract between buyer and seller with each other.