CBDT Dept Issues 19th Amendment Rules on Accounting of Goodwill

The business that has done the acquisitions in the previous years must be required to follow the amended rules made by the Central board of direct taxes (CBDT) upon accounting of goodwill and the tax liability which gets rises from these transactions.

The buying cost of an asset often engaged a premium which is said to be the goodwill on the books of the buyer. The government changed the income tax act via the finance act 2021 by restricting the goodwill to be treated as an intangible asset and refused the depreciation advantages upon this. As per that the businesses need to eliminate the goodwill from the block of assets dated 1 April 2020.

The Income Tax Amendment (19th Amendment) Rules is introduced that gives a computation mechanism to tax the impact of this elimination considering it as a transfer.

On 1st April 2020, the notification as per the experts revealed that where the value of net goodwill eliminated from the block is in excess of the opening written down value, these excesses shall now be provided to tax as a short-term capital gain. The cases in which the only asset is goodwill in the block shall have no impact.

“Aravind Srivatsan, partner and tax leader at Nangia Andersen LLP, a consultancy. India Inc. has witnessed a record number of mergers and acquisition deals and emergence of Indian unicorns with intangibles fetching substantial value in these transactions. Transactions done in the past five years in sectors such as pharmaceuticals, life sciences, start-ups lining for IPO would have to closely evaluate the financial impact of this amendment,”

The companies in which the goodwill is not been depreciated through 2020 April required to quickly quantity their tax consequence. This consequence for these corporates is that short-term capital gain taxes required to be calculated and be paid prior to furnishing the return of the income for the Financial year 2020-21.

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Consultancy allowability of the depreciation on the goodwill is been the concern for litigation for the future. The rules showing the computation mechanism were awaited and the written down value of the blocked intangible asset is to be calculated in the way laid down in rule 8AC.