India plans tax waivers for IDBI Bank buyer, say sources

Representational photo
| Photo Credit: G. Ramakrishna

The Centre is likely to waive some tax norms for the buyer of IDBI Bank in a bid to attract more suitors for a majority stake sale in the lender, two government sources said on Tuesday, after the Centre extended the deadline for initial bids. The federal finance ministry is looking to relax a tax clause, which would require the buyer of IDBI Bank to pay additional tax if the share price rises post the final bid, one of the officials said.

Share prices tend to increase after financial bids are invited by the government, the official said, noting that it would be “unfair” to ask the new buyer to pay tax on an increase in price from the time bids are placed to the closure of transaction.

In case the share prices of IDBI Bank increase after financial bids are formally placed, the difference in share price may be considered as “other income” for the buyer as per tax laws, explained Om Rajpurohit, a partner at tax firm AMRG & Associates. “This will be taxable at 30% plus a surcharge and cess,” Mr. Rajpurohit added. The government’s planned tax waiver will allow a potential buyer to avoid this levy.

The government and state-run Life Insurance Corp. (LIC) together hold about 95% in IDBI Bank, and have sought initial bids from investors to buy a 60.72% in the bank. Last week, it extended the deadline for submitting initial bids until January 7.

Once the government receives initial bids expressing interest from buyers, the Reserve Bank of India would vet them to see if they meet the central bank’s “fit and proper” criteria.

The finance ministry did not immediately reply to requests seeking comment.