Internal group reorganisations are undertaken by business conglomerates for a number of reasons, including consolidation of similar businesses to achieve synergies, divestment of non-core assets\/ business, re-alignment of promoter holding, family settlement, succession planning, or simply to untangle a complex group structure. The 2017 Budget introduced a slew of anti-abuse provisions, such as limiting the benefit of exemption of long-term capital gains, deeming the fair market value as full value of consideration in case of transfer of unquoted shares, widening the scope of \u2018income from other sources\u2019. In this article, the impact of these anti-abuse provisions on internal group restructuring exercises is discussed. The newly introduced sections in the Income Tax Act (I-T Act), 1961\u201450CA and 56(2)(x)\u2014that have been introduced as anti-abuse provisions seek to bring about a radical change in the way share transfers have been taxed till date. Section 50C was introduced in the Finance Act 2002 with the objective of ensuring that the value of consideration is not understated when transactions of transfer of immovable properties take place. In order to meet the same objective with regard to transfer of shares which are not listed on any recognised stock exchange (unquoted shares), Finance Act 2017 introduced Section 50CA which provides that the fair market value (FMV) of such shares shall be deemed as the \u2018full value of consideration\u2019 for computing income under the head \u2018capital gains\u2019. For determining the FMV of unquoted shares, the Central Board of Direct Taxes (CBDT) recently released draft rules wherein the existing Rule 11UA of the Income-Tax Rules (I-T Rules), 1962\u2014in relation to unquoted equity shares which dealt with book net worth\u2014is proposed to be amended to provide for a fair value approach. Fair value is to be determined of certain assets of a company\u2014jewellery, shares and securities, and immovable property, in accordance with the prescribed methods. For all other assets and liabilities of a company, book values are to be used to arrive at the valuation. You may also like to watch: Another anti-abuse section introduced by this year\u2019s budget is section 56(2)(x) which provides for taxing the receipt of any property by any person and from any person under the head \u2018income from other sources\u2019 if the difference between the FMV and the actual consideration exceeds `50,000. This new section, which will replace the existing sections 56(2)(vii) and 56(2)(viia) of the Act, covers a much wider tax base. The FMV for the purpose of section 56(2)(x) of the Act is also to be determined as per the proposed Rule 11UA of the I-T Rules. Although, the above two sections were introduced with the aim of plugging the loss to the revenue, however, it is likely to lead to a situation of double taxation in the case of transfer of unquoted shares at less than FMV\u2014in the hands of the transferor and again in the hands of the recipient. Further, these new provisions are also likely to impede genuine shareholding reorganisations, such as among group companies having a common parent or controlled by the same party or for transfer of shares held by companies to trusts to achieve family settlements, wherein wealth just moves from one pocket to another, and there is no real profit or income. The draft rules introduced for determination of FMV of unquoted equity shares pose several practical challenges. For instance, the FMV of shares and securities held in other companies are to be determined using the same Rule 11UA. This will particularly prove cumbersome and create practical difficulties in valuing holding companies\/core investment companies. Also, in the case of re-alignment of shares within the group of real estate\/infrastructure\/asset-heavy companies, it may be expensive as well as time-consuming to obtain the stamp duty value of every such immovable property. Further, in case of groups which have triangular\/inter-locked structures or companies having cross-holding amongst themselves, it may be impossible to arrive at the valuation of any company. Introduction of the abovementioned provisions, coupled with General Anti-Avoidance Rules (GAAR) from April 1, 2017, wherein the income-tax officer will be empowered to challenge transactions which lack commercial substance, is likely to inhibit genuine group reorganisations. This seems to go against the government\u2019s motive of curbing evasion of tax, as simplification of intricate corporate structures leads to better tax compliance. The Shome Committee in its Report on GAAR in 2012 had recommended that GAAR should not be invoked in intra-group transactions which may result in tax benefit to one person but overall tax revenue is not affected either by actual loss of revenue or deferral of revenue. Even internationally, several reliefs are provided for business restructuring activities. For instance, in China, transfer of equities or assets during a business restructuring exercise between enterprises, which either control the other or are commonly controlled, are eligible for tax deferral treatment. Similarly, even in United States, several benefits are available for internal reorganisations, where the ultimate beneficial owner is common. As India moves towards converging with the international tax regime, as can been seen under the BEPS initiative, the government must come out with requisite clarifications\/exemptions for business restructuring exercises where there is no real income\/profit, and allay unnecessary restrictions.