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Will a tax tweak save the Air India sale?

Photo: MintPremium
Photo: Mint

The Central Board of Direct Taxes (CBDT) on Friday and Saturday came up with a host of clarifications that may sweeten the process for privatization of ailing public carrier Air India, ahead of the deadline for financial bids from selected bidders by 15 September. Mint explains:

The Central Board of Direct Taxes (CBDT) on Friday and Saturday came up with a host of clarifications that may sweeten the process for privatization of ailing public carrier Air India, ahead of the deadline for financial bids from selected bidders by 15 September. Mint explains:

Notification on capital assets transfer

The government had in 2019 set up a special purpose vehicle, Air India Assets Holding Ltd (AIAHL), for transfer of debt and non-core assets of the Air India group. In a set of notifications on Saturday, CBDT said tax deducted at source (TDS) will not be applicable for transfer of goods and immovable property  by  Air India Ltd to  AIAHL. It also said that the transfer of capital assets from Air India Ltd to AIAHL under the plan approved by the Centre would not be regarded as transfer for the purpose of income tax. This would provide legal certainty and reduce tax liability on Air India following the privatization.

Clarification on carrying  forward  losses

Section 79 of the Income Tax Act means that following a change in ownership of a company, the new owner cannot carry forward past losses and claim tax rebate against future profits. This would mean that the future owner of Air India can also not claim tax rebates against the huge pile of debt it will have on taking over the carrier. But the finance ministry on Friday clarified that this clause will not be applicable to strategic disinvest-ments where ownership changes from the government to a private firm. The CBDT clarification means bidders may be more willing to carry more debt with Air India and quote a higher enterprise value.

Who has shown interest in bidding for Air India?

The Tata group is among the front runners to acquire the airline. According to media reports, SpiceJet’s chairman and managing director Ajay Singh has also been short-listed to bid for Air India in his individual capacity. Mint could not independently ascertain this. The government does not make public the shortlisted qualified bidders before the process is completed.

How are bidders going to  decide  the  bid  value?

Air India has accumulated losses of 70,820 crore till 31 March 2020. The Centre had initially decided to carry forward 23,000 crore debt to the successful bidder. But in October last year, it said bids would be on enterprise value, giving bidders freedom to decide how much debt they want to carry. The government decided that the successful bidder will have to give it 15% of the enterprise value quoted as cash and carry 85% as debt along with Air India. The higher the enterprise value quoted, the better the chances of winning the bid.

What is the status of disinvestment plan?

The Centre has so far garnered 8,369 crore, against the disinvest-ment target of 1.75 trillion for FY22. It has sold its entire stake in Axis Bank held through Specified Undertaking of the Unit Trust of India (SUUTI) for 3,994 crore and got 3,654 crore and 720 crore through stake sales in NMDC Ltd and Hudco Ltd, respectively. But with big ticket disinvestments such as the privatization of Bharat Petroleum Corp. Ltd and the mega share sale of LIC lined up, the government is hopeful of meeting its target by 31 March 2022.

 

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