We are at that time of the year when taxes are the talk of the town everywhere. The discussions tend to get more involved due to some far-reaching changes announced by the finance minister in the Union budget presented on February 1. Amendments introduced this year throw open a number of questions, which are expected to impact transactions going forward. In a major announcement, the exemption on long-term capital gains (LTCG) on sale of listed shares has been withdrawn. In keeping with its commitment to arrest tax terrorism, the government ensured that this was not done retrospectively and introduced provisions to grandfather accrued profits till January 31, 2018. The grandfathering provisions, vide the newly introduced section 112A, lead to multiple interpretational issues. While the CBDT has cleared the air around the condition for STT-paid acquisitions to avail of the grandfathering protection, what happens in case of mergers and demergers is still unclear. In case of a merger of a listed company into an unlisted company after January 31, resulting in the listing of the shares of the unlisted company post merger, the traded price of the listed amalgamating company as on January 31 will not be available as a cost to its shareholders post merger. Similar issues will arise in case of mergers between listed companies, demergers from listed companies, etc. In the absence of corresponding changes to section 49, these issues are likely to impact the way transactions are structured going forward. The amendment also adversely impacts listing plans of companies that have filed their offer documents with Sebi, factoring in the capital gains\u2019 tax exemptions on offers for sale by promoters and investors. The grandfathering benefits only shareholders of currently listed companies, and leaves promoters of companies awaiting Sebi nod to their listing offers in the lurch. Perhaps, extending the grandfathering to such companies in some form could be considered to minimise the impact on the IPO market. The other significant amendment proposed is how existing revenue reserves are treated in the event of an amalgamation. The existing tax laws treat certain forms of distribution of accumulated profits by companies to their shareholders as dividend and subject such distribution to applicable distribution taxes in the hands of the company and income tax in the hands of the recipient shareholders. In the past, some companies resorted to the merger route to reclassify the profits into capital, thereby, planning dividend taxes, particularly in cases where the shareholders enjoyed a treaty protection on capital gains. This route has now been plugged by inserting a provision that the accumulated profits of the amalgamating company will be added to the accumulated profits of the amalgamated company post merger. Corresponding provisions for demerger have not been proposed, perhaps, rightly so, since a demerger involves a split of the company. Also, whether the losses of the amalgamating company will also form part of the profits or losses of the amalgamated company is not clear. With successive changes to tax laws in each budget\u2014ranging from introduction of buyback distribution tax, inclusion of all forms of buyback within the scope of buyback distribution tax and now clubbing of accumulated profits post merger\u2014the avenues for a tax efficient repatriation of cash are getting increasingly limited. In keeping with the earlier announcement to reduce the corporate tax rate to 25%, the budget extends the benefit of a lower corporate tax rate of 25% to Indian companies, which have a turnover not exceeding Rs 250 crore during the financial year 2016-17. The move is expected to benefit a number of medium- and small-sized enterprises with a reduction in the effective tax rates. However, a number of issues arise here. There has been no change in the rate of minimum alternate tax (MAT) for such companies, which works out to an effective MAT rate of 20.6% to 21.55%, depending on the total income. In his budget presentation, the FM announced this as a measure to promote the MSME sector. However, what merits consideration is that such MSMEs are not necessarily organised in the form of only companies. Traditionally, partnership models and, increasingly, limited liability partnership structures have been popular, given the flexibility and lower compliance requirements that such entities offer. Not extending the benefit of the reduced tax rate to such entities will put an unequal divide among the various organised forms of businesses on taxes on profits earned under similar operating environment. Also, by benchmarking the availability of this benefit to revenues of a past financial year, the FM has raised a question on the government\u2019s intention to promote setting up of new businesses, which may not necessarily qualify the \u2018start up India\u2019 or the \u2018Make in India\u2019 schemes. A clarification in this regard is perhaps welcome. It may be noted that start-ups are eligible for a 100% tax holiday for three out of seven years and new manufacturing companies are eligible for a 25% corporate tax rate. The budget has provided a much needed thrust to the insolvency resolution scheme, by extending benefits under MAT and protection of tax losses on change in shareholding to companies under insolvency. While this is indeed a welcome move, many issues are also likely to arise on purchase of shares of such companies by buyers, with minimum consideration provisions under sections 50CA and 56 not being relaxed. Many times, such companies, especially those engaged in manufacturing, have operational losses but significant land bank, which may lead to a high minimum consideration under the tax laws. Notwithstanding the need for more equitability on some of the changes, these amendments are indeed very forward looking and demonstrate the foresight of the government in playing a balancing game between tax benefits and collections where its due. The approach towards treaty amendments to incorporate source-based taxation on capital gains, signing of the MLI Convention, abolition of exemptions on listed-share sales, puts India into spotlight as a country which no longer is deeply reliant on tax benefits as the source for attracting foreign capital flows. With one of the highest GDP growth rates and a government focused on fiscal deficit targets, India is certainly at the cusp of leading the next round of growth. Vaibhav Gupta and Samudra Acharyya. Gupta is associate partner and Acharyya is principal at Dhruva Advisors LLP Views are personal.