Tax sops for weak bank mergers

The finance bill has proposed tax benefit for bank mergers. A bank merged with another loss-making bank will get the benefit of Income Tax Act provisions relating to set-off and carry forward of loss and unabsorbed depreciation.

Oriental Bank of Commerce (OBC), which was asked to rescue the Global Trust Bank by way of merger, will benefit from this amendment.

Clause 19 of the Income Tax Act seeks to insert a new section 72AA in the Income-tax Act relating to carry forward and set-off of accumulated loss and unabsorbed depreciation allowance in scheme of amalgamation of banking company in certain cases, stated the finance bill.

As of now, only companies enjoy the benefit of setting off losses against profits between two merged entities to avail of a tax exemption.

The proposed new amendment will be effective retrospectively from 1st April, 2005 and shall accordingly apply for assessment year 2005-06 and subsequent years.

Therefore, Oriental Bank of Commerce will benefit from it.

The Indian Banks' Association's report on consolidation had recommended amendment of Section 72 A of the Income Tax Act to extend the available benefits of set-off of accumulated losses and unabsorbed depreciation to all amalgamations.