Mergers and Acquisitions for Startups & Founders in India (2026)

What You Actually Need to Know Before Selling, Merging or Taking Strategic Capital

What Are Mergers and Acquisitions in India? Meaning and Key Definitions

Mergers and acquisitions (M&A) are among the most powerful instruments of inorganic growth available to a company. In India, businesses across sectors treat M&A as a critical strategic tool for expanding market reach, acquiring technology, eliminating competition, accessing new geographies, and optimising tax structures.

What is a merger?

A merger is the combination of two or more companies into a single entity. In a merger, the combining companies typically cease to exist in their original form and operate as a new, enlarged company. The objective is not merely to accumulate assets and liabilities but to reorganise two distinct businesses into one coherent enterprise. Under Indian law, the term “merger” is not defined in the Companies Act, 2013. The Income Tax Act, 1961 uses the term “amalgamation” under Section 2(1B) to describe the merger of one or more companies with another, or the merger of two or more companies to form one company. For a merger to qualify as an “amalgamation” and receive beneficial tax treatment, specific statutory conditions must be satisfied.

What is an acquisition?

An acquisition is the process by which one company purchases another, either by buying its shares or its assets and liabilities. Unlike a merger, the acquired company may continue to exist as a separate legal entity under the control of the acquirer. Acquisitions can be friendly (negotiated with the target’s management) or hostile (pursued against the wishes of the target’s board).

What is a demerger?

A demerger is the reverse of a merger. It involves one company transferring one or more of its business undertakings into a new separate entity. Shareholders of the original company typically receive shares in the new resulting company. Demergers are used to hive off non-core businesses, separate a struggling division from a profitable one, or create a standalone entity for strategic or listing purposes.

What is a slump sale?

Defined under Section 2(42C) of the Income Tax Act, a slump sale is the transfer of one or more business undertakings as a going concern for a lump sum consideration, without assigning individual values to each asset or liability. It is one of the cleanest and most tax-efficient ways to carve out a product or business vertical in India.

Difference Between Merger and Acquisition

These two terms are frequently used together but represent meaningfully different transactions. The legal process, tax treatment, shareholder rights, and liability implications differ significantly.

Parameter	Merger	Acquisition
Company size	Typically between companies of similar size	A larger company takes over a smaller one
Outcome	Both companies combine into a new entity	One company absorbs or controls the other
New entity	A new company is formed with a new name	Acquired company operates under the parent company’s name or is absorbed
Shares	New shares are issued to shareholders of both companies	No new shares issued to acquired company shareholders in most cases
Legal process	Requires NCLT approval under Sections 230-234 of the Companies Act, 2013	Can be completed via share purchase agreement without court process
Control	Shared or negotiated between combining entities	Acquirer assumes full control
Initiating party	Mutually agreed by both boards	Driven by acquirer; can be hostile
Example	Glaxo Wellcome merging with SmithKline Beecham to form GlaxoSmithKline	Tata Motors acquiring Jaguar Land Rover from Ford

In practice, most startup deals are acquisitions structured as share purchases. True mergers requiring NCLT sanction are relatively uncommon in the startup ecosystem except where tax neutrality on asset transfer is the primary objective.

Types of Mergers and Acquisitions in India

Understanding the type of M&A transaction you are involved in is important for predicting how regulators, particularly the Competition Commission of India, will scrutinise the deal and for structuring the transaction in the most efficient way.

Types of Mergers

Horizontal Merger

A horizontal merger takes place between two companies operating in the same industry at the same stage of production, meaning direct competitors. Also referred to as horizontal integration, the primary goal is to eliminate a competitor, gain market share, achieve economies of scale, and expand geographic or product reach. Because horizontal mergers directly affect competition in a market, they receive the most scrutiny from the CCI. The merger of PVR and INOX to create India’s largest multiplex chain is a recent example.

Vertical Merger

A vertical merger combines two companies operating at different stages of the same supply chain or production process. For example, a company engaged in construction merging with a company producing brick or steel achieves vertical integration. The benefit is greater control over the supply chain, lower transaction costs, synchronisation of demand and supply, and greater independence and self-sufficiency.

Congeneric Merger

A congeneric merger involves two companies in the same or related industries or markets that do not offer the same products. The companies may share similar distribution channels, providing synergies for the merger. Overlapping technology or production systems make for relatively easy integration. This type of merger is often used by entities seeking to increase market shares or expand their product lines.

Conglomerate Merger

A conglomerate merger brings together two companies from entirely unrelated industries. The principal reason is utilisation of financial resources, enlargement of debt capacity, and increase in the value of outstanding shares through increased leverage and earnings per share, and by lowering the average cost of capital. A merger with an unrelated business also helps the company foray into diverse businesses without incurring large start-up costs normally associated with a new business.

Cash Merger

In a cash merger, also known as a cash-out merger, the shareholders of one entity receive cash instead of shares in the merged entity. This is effectively an exit for the cashed-out shareholders and provides an immediate and clean exit mechanism.

Triangular Merger

A triangular merger is a three-party arrangement used primarily for regulatory and tax reasons. The target merges not with the acquirer directly but with a subsidiary of the acquirer. In a forward triangular merger, the target merges into the subsidiary and the subsidiary survives. In a reverse triangular merger, the subsidiary merges into the target and the target survives, which can be useful for preserving the target’s contracts, licences, or regulatory approvals.

Types of Acquisitions

Share Purchase (Stock Acquisition)

The acquirer purchases the shares of the target company directly from existing shareholders. The target company continues to exist as a legal entity under the acquirer’s ownership. All assets, liabilities, contracts, and regulatory approvals remain with the company. This is the most common structure in Indian startup M&A.

Asset Purchase

The acquirer selects and buys specific assets and sometimes specific liabilities of the target. The target company itself is not transferred. Useful when the acquirer wants to ring-fence liability or avoid inheriting unknown obligations. GST applies on the transfer of individual assets.

Slump Sale

The entire business undertaking is transferred as a going concern for a lump sum. No GST applies on the transfer. Capital gains computation uses net worth rather than individual asset costs. For most startup product or vertical carve-outs, slump sale is the most efficient structure.

Acqui-hire

The acquirer buys the company primarily to bring the team on board. The transaction is often structured as an asset purchase combined with employment or retention agreements. Tax treatment depends heavily on how consideration is split between the business and the employment component.

Why Do Companies Go for Mergers and Acquisitions? Strategic Reasons

There is rarely a single reason behind an M&A decision. In India’s startup ecosystem, the motivations are often layered and include both offensive and defensive rationales.

Expanding performance and revenue

The combined entity will typically outperform two independent businesses. This comes from cost reduction through shared infrastructure, higher revenues from a broader customer base, or faster product development through shared capabilities.

Achieving faster inorganic growth

Building a capability organically takes time and capital. Acquiring a company that already has the technology, team, or market position is a shortcut. For mature companies acquiring startups, buying a growth-stage company is often faster and cheaper than building the equivalent product internally.

Gaining stronger market power

In horizontal mergers, the combined entity can command a larger market share and greater pricing power. In vertical mergers, controlling the supply chain creates structural competitive advantages and reduces external dependence.

Diversification to manage risk

Companies in cyclical or volatile industries use M&A to diversify their revenue mix. Acquiring a business in a non-cyclical sector reduces earnings volatility and makes the overall business more resilient.

Tax benefits and loss utilisation

Under Section 72A of the Income Tax Act, accumulated losses and unabsorbed depreciation of the amalgamating company can be carried forward and set off by the amalgamated company, subject to specified conditions. This makes acquiring a loss-making entity with a strong underlying business a financially rational decision.

Access to talent, technology and IP

Many startup acquisitions in India are driven primarily by the desire to bring in a specific engineering team, acquire proprietary technology, or obtain patents and trademarks.

Entry into new markets or geographies

An established brand in a new geography or vertical reduces market entry risk and timeline. The acquirer benefits from existing customer relationships, regulatory approvals, and distribution infrastructure.

Four Things Every Founder Must Know Right Now

1. Budget 2026 fixed buyback taxation. Minority shareholders (holding < 10%) now pay capital gains on buyback proceeds 12.5% if long-term instead of punishing slab rates of up to 42%. This is huge for ESOP liquidity. Founders holding ≥ 10% are classified as ‘promoters’ and face a higher effective rate (22–30%).
2. Your 24-month clock for unlisted shares still matters. Selling secondary shares before month 24 means slab-rate taxation, not the 12.5% LTCG rate. Time your exits carefully.
3. Slump sales remain the cleanest carve-out tool no GST on transfer of a going concern, no asset-by-asset allocation, and far simpler than a full NCLT scheme for most startup restructurings.
4. If you have a Chinese or Pakistani UBO anywhere in your cap table even three layers deep every FDI round needs government approval regardless of sector. Discover this early, not at term-sheet stage.

Why Startup M&A in India Just Got More Interesting

India’s startup ecosystem did more deals in 2025 than in any previous year. Technology alone accounted for 119 transactions in Q3 2025. Acquisition offers, strategic investment rounds that blur into control deals, and acqui-hires are now everyday events for founders at Series B and beyond.

But the legal framework underneath these deals has shifted materially. The Union Budget 2026-27 overhauled buyback taxation, the new Income Tax Act 2025 takes effect from 1 April 2026, and SEBI and RBI have issued clarifications that directly affect how founders, ESOPs, and early investors exit. This guide cuts through the noise and tells you what actually matters if you are a founder, CEO or early-stage investor thinking about a deal in 2026.

1. What Kind of Deal Are You Actually Doing?

Before any negotiation, you need to know which legal structure your deal falls into because each one has completely different tax, liability and approval consequences. Indian corporate law does not define ‘merger.’ The Income Tax Act defines ‘amalgamation’ for tax purposes, and a transaction that looks like a merger commercially may not qualify for tax-neutral treatment unless it is structured precisely.

The five structures founders most commonly encounter:

Structure	What It Means for You as a Founder / Early Investor
Share Acquisition (most common)	Acquirer buys your shares directly. You pay capital gains tax. Clean, fast, no court process. Your liabilities stay in the company.
Asset / Business Acquisition	Acquirer buys specific assets or the business unit. GST applies on asset transfers. Good if acquirer wants to ring-fence liability — often used in distressed situations.
Slump Sale	Transfer of an entire business unit as a going concern — no GST, no asset-by-asset pricing needed. Ideal for carving out a product or vertical for sale without selling the whole company.
Scheme of Arrangement (NCLT)	Court-supervised merger/demerger. Binding on all shareholders including dissenters once approved. Powerful but slow (4–9 months). Used for complex restructurings or where minority shareholders must be dragged along.
Acqui-hire	Acquirer buys the company primarily for the team. Often structured as asset purchase + employment agreements. Tax treatment depends on how the consideration is split between business and employment income.

Founder tip: If the acquirer says ‘we just want to buy the product,’ push back on asset-sale framing if you can a slump sale of the relevant business unit is usually more tax-efficient and administratively cleaner.

M&A Process in India: Step-by-Step

Understanding the procedural pathway is as important as understanding the deal structure. The process varies depending on whether the transaction is a simple share purchase or a formal merger scheme requiring NCLT involvement.

Step 1: Examine the Memorandum of Association

The primary thing to do is scrutinise the MOA of the companies involved and check whether the power of merger or acquisition is included. When there is no such power in the MOA, the company must amend it to include it before proceeding. This is frequently overlooked in early-stage transactions.

Step 2: Board Approval and Merger Proposal

The board of directors of both companies must pass a resolution approving the proposed transaction and the draft merger proposal. The board resolution authorises key managerial personnel to carry out the merger and acquisition. For listed companies, this also constitutes a price-sensitive disclosure obligation under SEBI Listing Regulations.

Step 3: Intimate the Stock Exchange

The merging companies must inform the stock exchange about the proposed merger and acquisition and send relevant documents such as resolutions, notices, and orders within the specified time. Any listed company involved in a scheme of arrangement must file the draft scheme with the relevant stock exchanges prior to filing with the NCLT, to seek a no-objection letter.

Step 4: File an Application with the NCLT

The companies must file an application with the National Company Law Tribunal having jurisdiction over the company, along with the required documents. The NCLT orders either a meeting of shareholders and creditors or dispenses with the meeting if written consents have been obtained.

Step 5: Shareholder and Creditor Approval

After the tribunal’s approval, a notification should be sent to all creditors and shareholders of the companies about the merger and acquisition within 21 days. If a meeting is convened, approval requires a majority in number representing three-fourths in value of creditors or shareholders present and voting. For fast-track mergers under Section 233, 90% of shareholders by number and creditors representing 9/10ths in value must consent.

Step 6: Filing Tribunal Orders with the Registrar of Companies

The confirmed copy of the tribunal order for merger and acquisition must be filed with the Registrar of Companies within the time specified by the tribunal.

Step 7: Merger of Assets and Liabilities

The assets and liabilities of both companies involved in the merger and acquisition are combined. In an NCLT-sanctioned scheme, the assets and liabilities of the transferor company vest in the transferee company by operation of law, without requiring separate deeds of transfer for each asset.

Step 8: Issue of Shares

When the merged companies form a new company, the company issues shares and debentures to the new company’s shareholders after listing on the stock exchange. The shares are allotted on a swap ratio as determined by an independent valuer and approved by the NCLT.

For share acquisitions not requiring NCLT, the process is significantly simpler: a Share Purchase Agreement is executed, consideration is paid, share transfer forms are filed with the company, the register of members is updated, and FEMA filings are made where non-resident parties are involved.

Due Diligence in M&A: What Founders Must Prepare For

Due diligence is the structured investigation a buyer conducts on a target company before finalising a deal. For founders on the sell side, having clean records is a material factor in deal speed, valuation, and the number of post-closing indemnity claims you face.

Legal Due Diligence

The buyer reviews all constitutional documents (MOA, AOA), shareholder agreements, investor rights agreements, ESOP schemes, material contracts, IP ownership, employment agreements, litigation history, and regulatory licences. Undisclosed side letters, informal board resolutions, or cap table inconsistencies surface here and almost always cause deal delays. Key items to clean up before entering a process: ensure all ESOP grants have board-approved documentation, that all investor agreements are consolidated and consistent, and that any informal understandings are documented.

Financial Due Diligence

Buyers examine audited financial statements, management accounts, revenue recognition policies, accounts receivable quality, deferred revenue, related-party transactions, and working capital trends. For startups, unit economics, CAC, LTV, and burn rate are as important as standard financials.

Tax Due Diligence

This covers direct tax (income tax assessments, TDS compliance, transfer pricing), indirect tax (GST filings, input tax credit claims), and any pending notices or demands. A Section 281 certificate under the Income Tax Act confirming no charge exists on assets is often required for asset-heavy deals.

FEMA and Regulatory Due Diligence

Every issuance of shares to non-residents, every transfer involving a foreign party, and every conversion of instruments must have a corresponding FCGPR or FCTRS filing in FIRMS. Buyers run this check systematically. Gaps require compounding before the deal can close cleanly.

Technical and IP Due Diligence

For technology companies, buyers assess code quality, open-source licence compliance, ownership of software (employee versus contractor-created code), data privacy practices under India’s Digital Personal Data Protection Act, and cybersecurity posture.

Due Diligence Area	What Buyers Look For	Common Founder Gaps
Legal	Cap table, SHA, ESOP documentation	Undocumented side letters, missing board resolutions
Financial	Revenue quality, working capital	Irregular recognition policies, undisclosed related-party transactions
Tax	Compliance history, pending demands	TDS defaults, GST mismatches, missing 15CA/15CB certificates
FEMA	FCGPR/FCTRS filings, pricing compliance	Late or missing filings on early angel rounds
IP	Ownership of code and patents	Contractor-created IP without assignment agreements
Employment	Offer letters, ESOP grants, PF/ESI compliance	Informal compensation arrangements, unregistered ESOPs

2. Tax: The Numbers That Actually Determine Your Net Payout

Tax is not a post-closing formality. It is a deal variable. A founder receiving INR 10 crore for shares held for 20 months versus 25 months faces a materially different net outcome. Here is the complete 2026 picture.

Capital Gains on Share Sales – The Core Framework

Your Situation	Tax Rate (2026)
Unlisted shares, held > 24 months (LTCG)	12.5% — no indexation (+ surcharge + 4% cess)
Unlisted shares, held ≤ 24 months (STCG)	Your income tax slab rate (up to 30% + surcharge + cess)
Listed shares, held > 12 months (LTCG, STT paid)	12.5% — first INR 1.25 lakh exempt
Listed shares, held ≤ 12 months (STCG, STT paid)	20% (+ surcharge + cess)
ESOPs — exercise to sale on unlisted shares	Perquisite tax on exercise + capital gains at above rates on eventual sale

The 24-month rule for unlisted shares is the single most important timing variable in a secondary transaction or acqui-hire exit. If you are 20 months into holding, it is worth asking whether a short bridge or deferral of closing is feasible the tax saving on a large exit can be substantial.

Budget 2026: The Buyback Fix Founders Have Been Waiting For

Prior to 1 April 2026, buyback proceeds were taxed as dividend income at slab rates of up to 42%+ for high-earning founders and angel investors. That is now gone. From 1 April 2026:

• Shareholders holding less than 10% of the company (most ESOP holders, angels, seed investors): buyback proceeds are taxed as capital gains 12.5% if you have held the shares for more than 24 months. This is a dramatic improvement.
• Shareholders holding 10% or more (most founders, lead investors, promoter-classified holders): capital gains apply, but the company also pays an additional income tax resulting in an effective combined rate of around 22% for corporate holders and 30% for individuals or HUFs.
• The promoter / non-promoter split is based on your holding percentage at the time of the buyback not at the time you first invested. Watch for dilution effects if you are close to the 10% line.

Practical implication: For ESOP buyback programmes, this reform is genuinely transformative. Companies that have been delaying employee liquidity events because of the old tax regime should model the new numbers now. For founders planning to use a buyback as their own partial exit, compare the effective rate against a straight secondary sale in many cases a secondary is still cleaner.

The New Income Tax Act 2025 – What Changes from 1 April 2026

The Income Tax Act 1961 is replaced by the Income Tax Act 2025 from 1 April 2026. The substantive capital gains provisions carry over, but simplified rules, restructured sections and new disclosure formats apply. If you are signing a Share Purchase Agreement or SHA in 2026, make sure your legal documents reference the correct Act. Tax representations, indemnity clauses and warranty language in older templates will need to be updated.

GST, Stamp Duty & Slump Sales – Quick Reference

• Share transfers: no GST. Stamp duty: 0.015% of consideration. Simple.
• Slump sale (going concern transfer): no GST a major structural advantage for product/vertical carve-outs.
• Asset sales: GST at 5%–28% depending on asset type. Immovable property additionally attracts stamp duty per state law this can be 3%–10% of value and is almost never modelled early enough.

Carry Forward of Losses in a Merger (Section 72A ITA)

One of the most significant but underutilised tax benefits in Indian M&A is the ability to carry forward and set off the accumulated business losses and unabsorbed depreciation of the amalgamating company in the hands of the amalgamated company under Section 72A of the Income Tax Act.

This benefit applies where the amalgamation involves a company owning an industrial undertaking, a ship, a hotel, or a banking company. The amalgamated company inherits the tax losses and uses them to offset future profits, subject to the following conditions:

• The amalgamated company must hold at least three-fourths of the book value of fixed assets acquired from the amalgamating company continuously for a minimum of five years from the date of amalgamation.
• The amalgamated company must continue carrying on the business of the amalgamating company for a minimum of five years from the date of amalgamation.
• The amalgamating company must have been engaged in the relevant business for at least three years and must have held three-fourths of the book value of its fixed assets for the two years preceding the amalgamation.

For amalgamations effected on or after 01.04.2025, the Finance Act 2025 has introduced a cap: the carry-forward period is limited to eight years from the assessment year in which the loss was first computed for the amalgamating company. Unlike earlier, the eight-year clock does not restart when the new entity is formed.

A similar benefit exists for demergers under Section 72A(4). In a demerger, accumulated losses and unabsorbed depreciation directly relatable to the transferred undertaking pass to the resulting company. Where losses are not directly relatable to a specific undertaking, they are apportioned between the demerged and resulting companies in proportion to the assets retained and transferred.

3. ESOPs in M&A – What Happens to Your Team’s Equity

ESOPs become a live deal issue the moment an acquisition offer arrives. Founders and CEOs must understand what happens to unvested options, how the acquirer will treat the ESOP pool, and what the tax consequences are for employees on exit.

The Three Things That Happen to ESOPs in an Acquisition

• Accelerated vesting: Some ESOP plans have single-trigger (change of control alone) or double-trigger (change of control + termination) acceleration clauses. Check your ESOP scheme documents before signing any term sheet.
• Cashout / buyout: The acquirer or the company pays cash to option-holders for their vested options. Under the new 2026 regime, if this is structured as a buyback, employees holding < 10% get capital gains treatment at 12.5% LTCG. If structured as a cash settlement at exercise, it is perquisite income on exercise and capital gains on any subsequent appreciation.
• Rollover into acquirer equity: Options convert into acquirer’s stock options or restricted stock units. Tax consequences are deferred until the new instruments vest or are exercised. Common in all-stock deals.

Founder CEO note: If you have significant unvested options as a working founder, negotiate double-trigger acceleration single-trigger acceleration may trigger a large tax event at closing even if you are still employed by the combined entity.

ESOP Liquidation Events – Tax Treatment at a Glance

Event	Tax Treatment (2026)
Exercise of options (unlisted shares)	Perquisite = FMV on exercise date minus exercise price — taxed as salary
Sale after exercise (held > 24 months)	12.5% LTCG on gains above FMV at exercise
Sale after exercise (held ≤ 24 months)	Slab rate on gains above FMV at exercise
Company buyback (holder < 10%)	Capital gains: 12.5% LTCG or slab rate STCG (new from April 2026)
Cashout at acquisition — treated as employment income	Slab rate; can be structured differently with appropriate documentation

4. Foreign Investors in Your Cap Table – What Every Founder Must Check

If you have taken foreign capital – even a small angel cheque from an NRI or a Singapore fund FEMA compliance is not optional. And the consequences of getting it wrong surface at the worst possible time: during due diligence for your exit.

The Five FEMA Issues That Derail Startup Deals

• Pricing non-compliance on past rounds: every issuance to a non-resident must be at or above fair market value (as certified by a registered valuer or CA using DCF/NAV). If an early round was priced below FMV even a friends-and-family angel round it can require compounding (regularisation) before a clean exit is possible.
• FCGPR not filed, or filed late: every issuance of shares to a non-resident must be reported to RBI through the FIRMS portal (Form FCGPR) within 30 days of allotment. Late filings require compounding. Buyers run FEMA compliance as a standard diligence item.
• Transfer pricing on FCTRS: when shares are transferred from a resident to a non-resident (or vice versa), the price must comply with FMV norms. The transfer must be reported on Form FCTRS. Secondary transactions including founder share sales to foreign PE funds trigger this requirement.
• Press Note 3 (the China / land-border rule): any investment where the ultimate beneficial owner is from a land-border country (China, Pakistan, Bangladesh, Nepal, Myanmar, Bhutan, Afghanistan) requires government (DPIIT / FIPB) approval regardless of sector or investment size. This applies through multiple holding layers. A fund incorporated in Mauritius but with a Chinese LP that holds more than 25% can trigger this. Identify all UBOs at the start of every round.
• Convertible instruments not converted on time: CCDs and CCPS must convert into equity within the stipulated period. If they have not, or if the conversion price was not fixed upfront, regulatory exposure exists.

The bottom line: a clean FEMA audit trail is a material valuation driver. Founders who maintain proper filings from round one avoid costly compounding proceedings and diligence delays at exit.

Cross-Border Mergers and Acquisitions in India

Cross-border M&A involves transactions between Indian and foreign companies, including a foreign company acquiring an Indian startup, an Indian company acquiring a business overseas, or a merger between an Indian and a foreign entity. The regulatory framework governing these transactions is distinct from purely domestic M&A.

Regulatory Framework: Section 234 and the Merger Regulations 2018

Section 234 of the Companies Act, 2013 permits mergers between Indian and foreign companies, subject to prior approval of the Reserve Bank of India. The RBI issued the Foreign Exchange Management (Cross Border Merger) Regulations, 2018 which provide that any transaction undertaken in accordance with those Regulations is deemed to have been approved by the RBI.

The Merger Regulations distinguish between two scenarios:

Inbound mergers (foreign company merging into an Indian company): The resulting Indian company must comply with applicable FEMA provisions, including pricing guidelines for shares issued to non-resident shareholders and applicable sectoral caps on foreign investment.

Outbound mergers (Indian company merging into a foreign company): Shareholders and creditors of the Indian company receiving consideration in the form of foreign securities must ensure compliance with the Liberalised Remittance Scheme, the Foreign Exchange Management (Overseas Investment) Regulations, 2022, and other applicable FEMA provisions. The resulting foreign entity must not be engaged in any sector prohibited for foreign investment under Indian law.

Post-merger compliances include reporting to the RBI and repatriation or disposal of Indian assets and liabilities not permitted to be held by the foreign entity within two years from the date of sanction of the merger.

FDI Rules in Cross-Border Acquisitions

When a foreign entity acquires an Indian company, the transaction must comply with the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019. Key compliance points include sectoral caps and entry routes (automatic vs government approval), fair market value pricing for shares issued to non-residents, and mandatory prior government approval for investments from land-border countries under Press Note 3. Deferred consideration up to 25% of total deal value is permitted, payable within 18 months of the transfer agreement.

Overseas Direct Investment by Indian Companies

An Indian company acquiring or investing in a foreign company must comply with the OI Rules (Foreign Exchange Management (Overseas Investment) Rules, 2022). Overseas Direct Investment is permitted up to 400% of the Indian company’s net worth through the automatic route without prior RBI approval. Any financial commitment exceeding USD 1 billion in a financial year requires prior RBI approval even within the 400% limit. ODI is not permitted where the foreign entity is engaged in real estate trading, gambling, or dealing in financial products linked to the Indian rupee without specific RBI approval.

Reverse Flipping: Moving the Holding Company to India

A significant trend in Indian startup M&A is the reverse flip, where a startup that originally incorporated its holding company abroad (Singapore, Delaware, Cayman Islands) restructures to move its holding company to India. The expanded fast-track merger route under Section 233 now permits a foreign parent company to merge into its Indian wholly-owned subsidiary. Drivers include improved Indian public market valuations, the deepening of the domestic PE/VC market, and the GIFT City IFSC offering a tax-efficient base for holding company structures. Tax implications of a reverse flip must be modelled comprehensively before initiating the process.

5. Competition Law – A Quick Snapshot for Startups

For most startup M&A transactions, the Competition Commission of India (CCI) is not a concern. The mandatory filing thresholds are designed for large-scale deals. However, there are two scenarios where even a growth-stage startup deal can land in CCI territory:

• Deal Value Threshold (DVT): if the total consideration globally exceeds INR 20 billion (approximately USD 240 million) AND the target has meaningful Indian operations (≥ 10% of global users, GMV or turnover), a CCI filing is required regardless of asset or turnover size. This is the scenario most relevant to high-value acqui-hires or acqui-acquisitions of data-rich platforms.
• You are being acquired by a large corporate group: if the acquirer’s group has combined India assets exceeding INR 25 billion or turnover exceeding INR 75 billion, their acquisition of your startup may trigger a combined threshold even if your own revenues are modest.

If neither of these applies to your deal, you can set competition law aside. If they might apply, the CCI now offers informal pre-filing consultation a practical first step before engaging in formal process.

SEBI Takeover Code: When Does an Open Offer Get Triggered?

The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, known as the Takeover Code, is relevant primarily for listed companies. However, founders of growth-stage startups approaching a listing, or those whose startups are being acquired by a listed entity, need to understand how the Takeover Code can affect their deal.

The Open Offer Obligation

Under the Takeover Code, an acquirer is required to make an open offer to all public shareholders of a listed target company in the following circumstances:

• Initial trigger: an acquisition of shares or voting rights that takes the acquirer (together with persons acting in concert) to 25% or more of the voting rights in the target company. The open offer must be for at least 26% of the total shares of the company.
• Creeping acquisition trigger: if the acquirer already holds between 25% and 75% of the target and acquires more than 5% of voting rights in any financial year.
• Acquisition of control: any acquisition of control over a listed company, regardless of the level of shareholding, without complying with the mandatory open offer obligation, is prohibited.

Pricing of the Open Offer

Regulation 8 of the Takeover Code sets out the parameters for determining the offer price, which is the same for mandatory and voluntary open offers. The offer price cannot be reduced once announced, though upward revisions are permitted subject to certain conditions.

Exemptions Relevant to Startups

The Takeover Code provides exemptions from the open offer obligation for acquisitions pursuant to a scheme of arrangement approved by the NCLT. Founders who structure their deal as an NCLT-sanctioned merger can potentially avoid triggering the open offer obligation on the acquirer side.

Voluntary Open Offer

An acquirer holding between 25% and 75% of a listed company may voluntarily make a public announcement to acquire additional shares. In case of a voluntary offer, the offer must be for at least 10% of the voting rights in the target company, and the aggregate post-offer holding must not exceed 75%.

Insider Trading Obligations in M&A

The SEBI (Prohibition of Insider Trading) Regulations, 2015 are directly relevant to any M&A involving a listed company. The board of the listed target must be of the informed opinion that sharing due diligence information with a potential acquirer is in the best interest of the company before sharing any unpublished price sensitive information. If the deal does not involve an open offer, UPSI must be made generally available to the market at least two trading days before the transaction is effected. Parties conducting due diligence must execute confidentiality and non-disclosure agreements as a condition for receiving UPSI.

6. NCLT & Company Law – When You Actually Need the Court

Most startup deals share acquisitions, asset deals, slump sales do not require NCLT involvement. The court becomes relevant in two situations: you are doing a formal merger/demerger scheme, or you need to use squeeze-out or capital reduction mechanics.

Fast-Track Merger (Section 233) – The Startup-Friendly Route

If your startup is merging with a holding company, a sister company, or another small company, the fast-track merger route under Section 233 is substantially quicker than a full NCLT scheme. It does not require a full NCLT hearing unless objections arise. Requirements: 90% shareholder consent and creditors holding 9/10ths in value must agree. Small company definition: paid-up capital ≤ INR 4 crore and turnover ≤ INR 40 crore.

From 2025, foreign parent companies can also merge into their Indian wholly-owned subsidiaries under an expanded fast-track route. This has opened a path for startups that initially incorporated abroad (Singapore, Delaware, Cayman) to ‘reverse flip’ their holding structure into India – particularly relevant as Indian public market valuations have improved and the domestic PE/VC market has deepened.

Minority Squeeze-Out – What Happens to Small Shareholders

If you are acquiring a company and reach 90% equity shareholding, you can offer to buy out the remaining minority at a registered-valuer-determined price they cannot refuse once the threshold is crossed. For unlisted companies, shareholders holding 75% of voting securities can also pursue a minority squeeze-out via NCLT. This matters for founders negotiating full control in secondary transactions.

Demergers in India: Structure, Process and Tax Treatment

A demerger is the strategic reverse of a merger. Where a company has grown to include multiple business lines or verticals, a demerger allows it to separate one or more of those undertakings into a new entity. This is relevant to founders who are structuring a partial sale of their business, separating a loss-making division from a profitable one, or creating a clean entity for an investor or acquirer.

Definition of Demerger Under Indian Law

Under Section 2(19AA) of the Income Tax Act, a demerger means the transfer, pursuant to a scheme of arrangement under the Merger Provisions, by a demerged company of one or more of its undertakings to a resulting company, such that:

• All property and liabilities of the transferred undertaking vest in the resulting company at book value (or at fair value for companies following Indian Accounting Standards, following the Finance Act 2019 amendment).
• The resulting company issues shares to the shareholders of the demerged company on a proportionate basis.
• Shareholders holding at least three-fourths in value of the shares of the demerged company become shareholders of the resulting company.
• The transfer is on a going concern basis.

Tax Treatment in a Demerger

The Income Tax Act provides significant tax neutrality for qualifying demergers.

For the demerged company (transferor): Under Section 47(vib), the transfer of assets by the demerged company to the resulting company is exempt from capital gains tax, provided the resulting company is an Indian company and the demerger meets the statutory conditions.

For shareholders of the demerged company: The receipt of shares in the resulting company in exchange for their proportionate shareholding is not treated as a taxable transfer. The cost of acquisition of the new shares is computed proportionately from the original cost of shares in the demerged company.

For foreign demergers involving Indian assets: Under Section 47(vic), where both the demerged and resulting companies are foreign but the assets include shares in an Indian company, the transfer is exempt from capital gains in India if shareholders holding at least three-fourths in value of the demerged foreign company remain shareholders of the resulting foreign company, and the transfer does not attract capital gains tax in the demerged company’s country of incorporation.

Demerger vs Slump Sale: Which Is Right for Your Startup?

Parameter	Demerger (NCLT Scheme)	Slump Sale (Contractual)
Regulatory approval	Required (NCLT, ROC, SEBI if listed)	Not required
Timeline	4–9 months	1–3 months
Tax on transfer	Exempt if conditions met	Capital gains at 12.5% LTCG (if held > 36 months)
Shareholder approval	Three-fourths in value	Board approval + special resolution
Use case	Structural separation, listing a subsidiary, complex multi-stakeholder restructuring	Quick carve-out of a product, vertical, or business unit for sale
Shares issued to shareholders	Yes, proportionately	No — consideration goes to the company
GST	Not applicable on transfer	Not applicable (going concern)

For most founder-led startups looking to sell a specific business vertical while retaining the parent entity, a slump sale is faster and cheaper. A demerger makes sense when the objective is to create a standalone entity with its own shareholders and balance sheet, particularly as a precursor to a separate fundraise or listing.

Practical Implications: What to Do Right Now

If You Are Selling or Considering an Exit

Check your FEMA filing history before any buyer does. Run a quick internal audit of all FCGPR and FCTRS filings gaps will surface in diligence anyway, and addressing them proactively gives you leverage rather than costing you negotiating position. Also check the 24-month clock on your share holding dates. If you are within a few months of crossing from STCG to LTCG treatment, the difference in net proceeds can be meaningful enough to influence deal timing.

If You Are Raising a Strategic Round That May Give an Investor Significant Influence

A strategic investor acquiring a meaningful minority stake (even 15–20%) with strong governance rights board seat, consent rights, information rights can look a lot like a partial acquisition. Structure the investment instruments carefully. FEMA pricing compliance, sectoral caps, and the nature of the consent rights all need to be mapped before term sheet.

If You Are Acquiring Another Startup

Map the target’s FEMA and ESOP compliance posture in your first week of diligence these are the two areas most likely to contain hidden liability. Also decide early whether you want a share deal (liability comes with the company) or an asset/slump sale deal (you buy only what you want). For talent-driven acquisitions, the ESOP treatment for the target’s team is often more important to the negotiation than the headline price.

Recent Mergers and Acquisitions in India (2024-2025 Examples)

India’s M&A activity has accelerated significantly across sectors. Understanding real examples helps founders benchmark deal structures, valuations, and regulatory timelines.

Tata Group and Air India

Tata Group acquired Air India, the nationalised airline, in 2022 and subsequently announced the merger of Air India with Vistara, a joint venture between Singapore Airlines and Tata Sons. Air India had been struggling in business, and travel restrictions during the COVID-19 pandemic added further difficulties. Tata is working to restore Air India to its former standing. This deal involved multiple NCLT approvals, foreign investment compliances, sector-specific regulatory clearances, and competition review, making it one of the most complex M&A transactions in Indian aviation history.

PVR Merger with INOX

India’s two leading cinema franchises, INOX and PVR, merged in 2022 to establish the largest multiplex chain with over 1,500 screens nationwide. The COVID-19 pandemic was tough on the film industry and theatres. The INOX and PVR merger resulted in reduced rental costs, advertising revenues, and convenience fees for the merged entity, now called PVR-INOX. This is a textbook horizontal merger structured as a scheme of arrangement under the Companies Act.

Zomato Acquired Blinkit

Indian food aggregator platform Zomato acquired Blinkit, the quick commerce company, for INR 4,447 crore. Zomato operates in the food delivery and restaurant hosting businesses, but with the acquisition of Blinkit it also entered the quick commerce field. This is a congeneric acquisition where Zomato expanded into an adjacent segment without building the capability internally.

HDFC and HDFC Bank

One of the largest corporate mergers in Indian history, HDFC Limited (housing finance) merged into HDFC Bank in 2023, creating one of the world’s largest financial institutions by market capitalisation. This vertical merger required approvals from the RBI, NCLT, SEBI, stock exchanges, and various other regulators, and took approximately two years from announcement to completion.

These examples collectively illustrate that M&A in India spans the full spectrum from quick startup share acquisitions to multi-year mega-mergers requiring involvement from multiple regulators. Deal complexity and timeline scale directly with the number of regulators involved and the nature of the transaction structure.

Advantages and Disadvantages of Mergers and Acquisitions

Before entering any M&A process, founders and investors must weigh the strategic benefits against the execution risks and costs.

Advantages of Mergers and Acquisitions

The mergers and acquisitions process helps companies increase their operations and net worth quickly. It also helps boost the share price of the companies. The newly formed company’s combined assets and capital help reduce competition and gain a competitive edge. The new company formed by combining two companies can dominate other market players, ensure financial gains, and guarantee better performance. It simplifies the task of attracting a customer base.

Mergers and acquisitions between companies provide various tax benefits. The losses incurred by one company are set off against the profits earned by another entity under Section 72A, thus minimising the tax liability. Since mergers and acquisitions require two companies to work together, it provides sales prospects and increases the business’s market reach. Inorganic growth through M&A is also usually a quicker way to achieve higher revenues than organic growth, as a company can gain the latest capabilities without spending on developing the same internally.

Disadvantages of Mergers and Acquisitions

When two companies combine to become one company, it may result in having two employees doing the same job. This may result in job loss and retrenchments. A company spends a lot of energy, time, and money on acquiring another business, resulting in forgoing other potential opportunities. Mergers and acquisitions involve high legal costs, including advisory fees, valuation costs, NCLT filing charges, and stamp duty.

Integration risk is consistently the most underestimated challenge. Two companies with different processes, cultures, and management styles often struggle to integrate. Hidden liabilities that were not disclosed or were unknowable at the time of signing can surface post-closing. Despite due diligence, acquirers sometimes overpay, particularly in competitive bidding processes.

Advantage	Disadvantage
Faster growth than organic build	Integration complexity and cultural friction
Tax loss utilisation (Section 72A)	Job redundancies and retrenchment costs
Economies of scale and cost reduction	High transaction costs (legal, advisory, stamp duty)
Access to talent, technology and IP	Management bandwidth consumed by integration
Stronger competitive position and market share	Risk of hidden liabilities surfacing post-closing
Better capital market access	Valuation risk and potential overpayment

The Founder’s M&A Checklist: 6 Things to Do Before You Sign

1. Check your holding period. Confirm the date of allotment for every block of shares you hold. If you are close to the 24-month LTCG threshold for unlisted shares, model the tax impact of closing now versus in a few weeks.
2. Run a FEMA compliance audit. Pull all FCGPR and FCTRS filings from FIRMS. Identify any late filings, pricing issues, or unconverted instruments. Get compounding done before diligence starts.
3. Review your ESOP scheme for acceleration and buyout provisions. Know whether your plan has single-trigger or double-trigger acceleration and what the tax consequence is for your team at closing.
4. Identify all UBOs in your cap table. Map every foreign investor to its ultimate beneficial owner. Flag any land-border country exposure under Press Note 3 and tell your lawyer immediately if you find any.
5. Decide your deal structure before negotiating price. Slump sale, share sale, or asset sale each has different GST, stamp duty, and liability implications. The structure affects what the acquirer is willing to pay.
6. Update your corporate documents to reference the Income Tax Act 2025. Any SPA, SHA or scheme petition signed from 1 April 2026 should reference the new Act. Tax representations and indemnity language need to be updated.

How Treelife Can Help

Treelife works with founders, CEOs and startup investors across the full deal journey from pre-deal structuring and FEMA compliance audits, through ESOP planning and SPA negotiation, to NCLT filings, CCI assessments and post-merger integration. If you are looking at a deal in 2026, the best time to talk to us is before you receive a term sheet.

Sources & Endnotes:

• EY India M&A Report Q3 2025 — deal activity up 37% YoY to US$26 billion, 119 technology deals: https://www.ey.com/en_in/insights/mergers-acquisitions/why-india-s-deal-market-in-q3-signals-long-term-m-a-resilience
• Union Budget 2026-27 — buyback proceeds reclassified as capital gains; 10% promoter threshold; MAT rate cut to 14%: https://www.pib.gov.in/PressReleasePage.aspx?PRID=2221455
• Business Standard — Union Budget 2026-27: Buyback proceeds to be treated as capital gains (1 February 2026): https://www.business-standard.com/budget/news/budget-2026-buyback-proceeds-to-be-treated-as-capital-gains-126020101050_1.html
• Inc42 — Union Budget 2026: The Buyback Blowback for Founders (10% promoter classification, effective rates): https://inc42.com/resources/union-budget-2026-the-buyback-blowback-for-founders/
• Alvarez & Marsal — Union Budget 2026 Tax Alert (MAT, IFSC, buyback, TP analysis): https://www.alvarezandmarsal.com/thought-leadership/union-budget-2026
• Income Tax Act 2025 / New IT Act replacing 1961 Act from 1 April 2026 — PIB: https://www.pib.gov.in/PressReleasePage.aspx?PRID=2221416
• FEMA Non-Debt Instruments Rules 2019 and FIRMS portal (FCGPR / FCTRS reporting requirements): https://rbi.org.in/Scripts/NotificationUser.aspx?Id=11722
• Press Note 3 (2020) — Ministry of Commerce (land-border country FDI approval requirement): https://dpiit.gov.in/sites/default/files/pn3_2020.pdf
• Singhania & Co — Recent M&A Reforms in India: FOCC downstream, share-for-share, fast-track cross-border route: https://singhania.in/blog/recent-m-a-reforms-in-india-what-dealmakers-need-to-know
• CCI (Combinations) Regulations 2024 — Deal Value Threshold, expanded control definition, 30-day prima facie window: https://cci.gov.in/faqs
• Nagashima — CCI de minimis threshold (INR 4.5Bn assets / INR 12.5Bn turnover), effective March 2024 for two years: https://www.noandt.com/en/publications/publication20240424-1/
• Companies Act 2013 — Section 233 (fast-track merger), Section 234 (cross-border merger), Section 68 (buyback): https://www.mca.gov.in/content/mca/global/en/acts-rules/ebooks/acts.html
• Foreign Exchange Management (Cross Border Merger) Regulations, 2018: https://rbi.org.in
• SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011: https://sebi.gov.in
• Income Tax Act, 1961 — Section 72A (carry forward of losses in amalgamation), Section 2(19AA) (demerger definition), Section 47(vib)/(vic) (demerger exemptions)

FAQ: What Founders Ask Us Most

Q. I want to do a buyback to give my ESOP holders some liquidity. How does this work under the new rules?

A. From 1 April 2026, employees holding less than 10% of the company will pay capital gains on buyback proceeds 12.5% if they have held shares for more than 24 months (post-exercise). This is a massive improvement over the old dividend treatment. Run the 10% check carefully: the threshold is based on holding percentage at the time of buyback, so dilution from recent rounds may bring some holders below 10% who previously would not have been. Structure the buyback with a registered valuer report and comply with the Companies Act timeline (offer open for 15 days; shares extinguished within 7 days of buyback; return filed within 30 days).

Q. We incorporated in Singapore two years ago. Can we move the holding company to India and how long does it take?

A. Yes, the expanded fast-track merger route (Section 233) now allows a foreign parent to merge into its Indian wholly-owned subsidiary. The process requires 90% shareholder approval, creditor consent, and filing with the respective Registrar of Companies. For Singapore-incorporated entities, the Accounting and Corporate Regulatory Authority (ACRA) in Singapore also needs to be involved. Timeline: typically 3–5 months if there are no objections. Tax implications of the flip both in India and in Singapore must be modelled carefully before you start, particularly on unrealised gains in the foreign holding company.

Q. My lead investor is a Cayman fund but one of its LPs is a Chinese family office. Do we need government approval for every round?

A. Yes, if that Chinese LP holds 25% or more of the Cayman fund, Press Note 3 applies and every equity issuance to that fund requires prior government (DPIIT) approval. The approval process takes 3–6 months on average. If the LP holds less than 25%, beneficial ownership analysis under FEMA’s NDI Rules still applies and you should get a legal opinion confirming the position before each round closes. Retroactive regularisation of past rounds issued without approval is possible but involves compounding proceedings and a penalty.

Q. We are getting acqui-hired. Is the payment for our company or for our employment treated differently for tax?

A. Yes, and the distinction matters a lot. Consideration paid for your shares (or for the business as a slump sale) is capital gains income taxed at 12.5% (LTCG) or slab rate (STCG). Sign-on bonuses, retention payments, and any consideration specifically linked to your continued employment are treated as salary — taxed at your income slab rate of up to 30% plus surcharge and cess. In acqui-hire negotiations, structuring more consideration toward the share purchase price and less toward employment compensation is typically more tax-efficient for the founders.

Q. What is the minimum amount of legal advice we actually need for a small startup acquisition?

A. At minimum: a proper Share Purchase Agreement with FEMA-compliant representations, a tax opinion on the structure (especially if the deal is above INR 50 lakh), and a FEMA compliance check on past filings. If ESOPs are involved, add an ESOP treatment memo. If foreign investors are selling, add a FCTRS analysis. Trying to save money by using a generic template for a share acquisition is the most common source of post-closing disputes we see — particularly around earn-outs, ESOP treatment, and tax indemnities.

Q. What is the difference between a slump sale and an asset sale, and which is better for a startup selling a product vertical?

A. In a slump sale, the entire business undertaking is transferred as a going concern for a lump sum consideration without assigning individual values to each asset or liability. In an asset sale, specific assets are identified, individually priced, and transferred. The tax and cost difference is significant. A slump sale attracts no GST because a going concern transfer is not treated as a supply of goods or services under the GST Act. An asset sale attracts GST at rates between 5% and 28% depending on the asset category, plus stamp duty on immovable assets at state-specific rates of 3% to 10%. For capital gains, a slump sale uses net worth of the undertaking as the cost base, which is often more favourable than asset-by-asset cost computation. For most startups selling a product, a vertical, or a business unit, slump sale is the cleaner and more cost-efficient structure, provided the unit being sold qualifies as a business undertaking and not merely a collection of individual assets.

Q. We have a term sheet for acquisition but our FEMA filings have gaps from early rounds. What do we do?

A. Do not wait for the buyer to find the gaps in due diligence. Identify every FCGPR and FCTRS filing that was late, incorrect, or missing, and initiate compounding proceedings with the Reserve Bank of India before the diligence process begins. Compounding is a regularisation mechanism under FEMA where the violation is acknowledged and a penalty is paid, after which the RBI issues a compounding order that clears the record. The penalty is generally calculated based on the amount involved and the period of delay. While compounding takes time (typically 3 to 6 months for straightforward cases), having a compounding order in hand is far better than having open violations flagged during buyer diligence. Unresolved FEMA gaps give buyers a legitimate basis to either reduce the purchase price or walk away. Proactive regularisation demonstrates compliance posture and protects your negotiating position.

Q. Can a founder sell their personal shares to the acquirer while the company itself is not being sold?

A. Yes. A secondary share sale allows a founder or early investor to sell their personal shareholding directly to the acquirer without the company itself being the transacting party. The founder receives the consideration and pays capital gains tax at 12.5% LTCG (if shares have been held for more than 24 months) or at slab rate STCG (if held for 24 months or less). If the buyer is a non-resident, the transaction must comply with FEMA pricing norms and must be reported on Form FCTRS within 60 days of transfer. If the company has foreign investors, the acquirer must also check whether the secondary purchase would cause aggregate foreign holding to breach any applicable sectoral cap. Secondary sales by founders are increasingly common in late-stage rounds where founders want partial liquidity without triggering a full acquisition.

Q. What happens to a startup’s existing contracts and licences in a share acquisition versus an asset or slump sale?

A. This is one of the most practically important structural questions in any deal. In a share acquisition, the acquirer buys the company as a whole. All existing contracts, licences, regulatory approvals, customer agreements, vendor agreements, and employment contracts remain with the company and continue automatically. No assignment or novation is required unless a specific contract contains a change-of-control clause that requires the other party’s consent. In an asset or slump sale, assets and contracts transfer to the acquirer entity. Contracts that are not assignable without counterparty consent need fresh execution or novation, which takes time and sometimes fails. Regulatory licences and government approvals typically do not transfer automatically in an asset deal and must be reapplied for. For startups with large volumes of customer contracts, SaaS agreements, or regulated licences (fintech, healthcare, payments), a share acquisition is almost always operationally cleaner than an asset deal. The trade-off is that the acquirer inherits all liabilities, known and unknown, which is why warranty and indemnity provisions in the SPA carry significant weight.

Q. How is goodwill treated for tax purposes when a startup is acquired at a premium to book value?

A. When a startup is acquired through a share purchase, the premium paid over book value is not directly recognised as goodwill in the target company’s books. The acquirer records goodwill at the consolidated level if the transaction is treated as a business combination under Ind AS 103. That goodwill is not tax-deductible and is no longer eligible for depreciation in India following the Supreme Court ruling in Smifs Securities and the subsequent amendment to Section 32 of the Income Tax Act removing goodwill from the list of depreciable assets with effect from FY 2021-22. In a slump sale, the excess of purchase consideration over net worth is economically equivalent to goodwill but is not separately recognised or amortised for tax purposes. In an asset acquisition where goodwill is specifically identified and valued, it is treated as an intangible asset. However, goodwill that has not been purchased from a previous owner (internally generated goodwill) has a nil cost for tax purposes under Section 55 of the ITA. Founders and acquirers should model the post-acquisition depreciation and amortisation impact carefully, as the absence of goodwill depreciation has a direct effect on post-acquisition taxable income.