Structuring for success: Regulatory and Tax considerations in Indian M&A

India's M&A market has entered a more mature, active and scrutinised phase. After record deal activity in 2025, momentum has continued into 2026. In Q2 2026, India recorded 565 M&A and PE transactions worth USD 36.3 billion. M&A alone accounted for 240 transactions worth USD 27.9 billion, the highest quarterly M&A value since Q2 2022[1]. The market has also been marked by increasingly ambitious cross-border transactions, including Sun Pharmaceutical Industries' proposed USD 11.75 billion acquisition of Organon & Co. and Coforge's USD 2.35 billion acquisition of Encora[2]. These transactions illustrate the scale and complexity now routinely confronting Indian deal teams. As deal values rise and structures become more cross-border, the consequences of treating regulatory, tax and execution issues as downstream matters become more significant.

Against this backdrop, the expanded fast-track merger regime, tighter antitrust scrutiny, liberalised foreign investment norms, a maturing data protection framework, the Income-tax Act, 2025 and evolving rules on the utilisation of tax losses have materially reshaped M&A structuring in India. An overlooked merger-control filing can disrupt the transaction timetable, a sectoral or foreign investment restriction can affect the chosen acquisition vehicle, an incorrect assumption on loss carry-forwards can affect valuation, and a data protection issue identified post-completion can materially change the risk profile of the acquired business. Structuring is therefore central to value, execution certainty and risk allocation. This article first considers the key regulatory developments, then the principal structuring, diligence and sequencing issues, before turning to tax considerations that should be addressed before a structure is locked in.

Navigating the regulatory considerations

Foreign exchange and sectoral approvals

On the foreign investment side, the direction of travel has been liberalising. The FDI cap in insurance has moved from 74% to 100%, and clarifications to the downstream investment framework now permit foreign-owned and controlled companies to invest downstream under the automatic route, provided the underlying sector permits 100% FDI and pricing and reporting norms are observed, a welcome simplification for private equity funds and multinational structures with layered Indian subsidiaries. Share swap-based mergers between Indian and foreign entities are also now more workable without triggering fresh capital inflow requirements.

None of this displaces sector-specific approval requirements. Defence, pharmaceuticals, media and broadcasting, and select financial services continue to carry their own conditions, from government-route approval above a threshold to licensing conditions tied to the target's business. These should be mapped at the outset, together with the pricing guidelines applicable to any share transfer between resident and non-resident parties, rather than discovered midway through diligence.

The Indian Company law landscape continues to evolve. The Corporate Laws (Amendment) Bill, 2026 should be tracked by deal teams with a completion horizon into 2027, as it may further affect merger processes and governance requirements.

Acquisition financing has evolved as well. Recent amendments to the Reserve Bank of India's directions on commercial bank lending now permit Indian banks, within defined prudential limits, to extend credit facilities for equity acquisitions, a departure from the historically restrictive approach to bank-funded share purchases.[3] This is expected to widen the pool of domestic acquisition finance available to strategic and sponsor backed buyers and should be factored into financing structures that have traditionally relied on offshore debt or seller financing by default.

Antitrust issues

The introduction of the 'deal value threshold' in September 2024 brought a category of high value technology and digital transactions within the Competition Commission of India's mandatory notification regime, even where the target's asset or turnover figures fall below the traditional thresholds. Minority investments carrying information or veto rights can also trigger a filing obligation, so term sheets should address CCI timing and conditionality well before signing. The standstill obligation between signing and CCI approval is treated strictly, gun jumping has attracted penalties of up to 1% of the parties' combined assets, turnover, or deal value, whichever is highest, and recent enforcement action confirms regulators are prepared to use that power.

Emerging diligence issues

• Data protection: With the Digital Personal Data Protection Act, 2023 now operative, acquirers inherit the target's data fiduciary obligations. Diligence on consent architecture, cross-border transfer practices, and breach history has become a standard workstream, particularly for fintech, health-tech, and consumer facing targets.

• Distressed M&A under the IBC: Insolvency driven consolidation remains a significant route in infrastructure, manufacturing, healthcare, and real estate. The settled position that all prior liabilities are extinguished on approval of a resolution plan continues to make this an attractive, if procedurally distinct, acquisition channel.

• Disclosure discipline: Recent enforcement involving a leaked strategic investment has underscored that regulators expect prompt disclosure once media speculation begins, regardless of whether a binding agreement exists. Deal teams should have a leak response protocol agreed before a process launches, not after a leak occurs.

• Workforce and ESG-adjacent exposure: As reorganisations increasingly involve carve-outs and business transfers, diligence on statutory labour compliance, retrenchment history, and pension or gratuity funding gaps has become a standard, rather than optional, workstream, particularly where the target has a large blue collar or contract workforce.

Choice of transaction structure

The choice between a share acquisition, a slump sale or business transfer, and a merger or demerger remains the foundational structuring decision.

Set out below is a general overview of the commonly used transaction structures for acquisitions.

Structuring Options	Tax Impact	Key Regulatory Considerations	Typical Use Case
Share acquisition	Capital gains for seller (long-term capital gain /short-term capital gains); no step-up in asset basis for buyer	Contractual; FEMA pricing/reporting if cross-border; CCI if thresholds met	Clean control acquisitions; PE exits
Slump Sale / Business Transfer	Gains taxed as capital gains on net worth; buyer gets cost step-up	Contractual; consents for licences/contracts; GST on going concern generally exempt	Carve-outs; divestment of a business line
Court/NCLT-Sanctioned Merger or Demerger	Tax-neutral under Section 47 if conditions met; losses carried forward only for remaining original period	NCLT approval; applicable shareholder/creditor approvals; RBI approval for cross-border schemes	Complex group reorganisations; consolidations; demergers
Fast-Track Merger under Section 233	Tax-neutral if statutory conditions are met; loss carry-forward subject to applicable rules	Regional Director route; eligibility criteria; 90% shareholder/creditor approval by value; solvency declarations; RBI approval for eligible cross-border schemes	Eligible intra-group mergers; qualifying unlisted companies; reverse-flip structures

Among the structuring options set out above, the fast- track merger route has become increasingly relevant. The Ministry of Corporate Affairs has meaningfully widened the fast-track merger route under Section 233 of the (Indian) Companies Act, 2013, which bypasses the National Company Law Tribunal in favour of Regional Director approval. Eligibility now extends to a broader class of unlisted companies, including those with borrowings up to INR 200 crore, and to holding-subsidiary and fellow-subsidiary combinations that previously required full NCLT proceedings. Where available, this route materially shortens execution timelines and reduces litigation risk, but it depends on securing approval from at least 90% of shareholders and creditors by value and on both entities filing solvency declarations, conditions that need to be tested early, not assumed.

A parallel development is the extension of the fast-track route to certain cross-border combinations, permitting a foreign parent to merge into its wholly owned Indian subsidiary. This has, in effect, opened a more efficient channel for ‘reverse-flip’ transactions, allowing Indian founded businesses that had earlier redomiciled abroad to bring their corporate structure back onshore ahead of an Indian listing or a domestic strategic sale. RBI approval under FEMA remains mandatory, and additional filings apply where the foreign entity is incorporated in a jurisdiction sharing a land border with India.

Optional considerations

Structure choice also has operational consequences. A slump sale or business transfer typically requires fresh consents from customers, landlords and lenders, while employee transfers must be handled carefully to preserve continuity of service and statutory benefits. A court, or tribunal sanctioned merger, by contrast, generally transfers employees and contracts by operation of law, which can be decisive for businesses with large workforces or a dense web of customer contracts that would be commercially difficult to re-paper. These consequences should be assessed at the structuring stage alongside regulatory and tax considerations. The warranty and indemnity insurance has also become more common in Indian private M&A and private equity exits, sharpening the diligence insurers expect before pricing around identified exposures.

Stamp duty considerations

Stamp duty is another important structuring consideration, given that incidence and quantum can vary materially depending on the transaction structure and relevant state. It continues to be one of the least standardised and most consequential cost lines in any Indian deal, since rates and the characterisation of instruments vary by state and by the nature of the transaction, share transfer, business transfer, or court sanctioned scheme. It should be factored in at term sheet stage as part of overall structuring discussion, not left to the closing mechanics schedule.

Income Tax Act, 2015

The Income Tax Act, 2025 (‘2025 IT Act’) took effect from 1 April 2026 and replaced the Income Tax Act, 1961 (‘1961 IT Act’). For M&A transactions, the change is significant but not revolutionary as the core scheme for capital gains, tax neutral reorganisations, and loss carry-forwards is preserved, but under renumbered provisions. Slump sale treatment, previously under Section 50B of the 1961 IT Act, and amalgamation loss carry-forward, previously under Section 72A of the 1961 IT Act, now sit under different section numbers. Any diligence memorandum, valuation model, or long form agreement that continues to cite the old sections for a transaction effective on or after 1 April 2026 risks internal inconsistency and, in the worst case, a compliance gap.

Capital gains and tax neutral reorganisations

On capital gains, the framework has settled into a reasonably predictable regime. The shares held for more than 24 (twenty-four) months qualify as long term capital gains, taxed at 20% with indexation, while shorter holding periods attract 15% short term capital gains for listed securities and slab rates for unlisted ones. Similarly, the tax neutrality available to mergers and demergers continues to be a valuable structuring tool. The tax benefit is subject to strict statutory conditions, including the requirement that the amalgamated company be Indian, making early structuring analysis essential in transactions involving offshore holding companies or cross-border amalgamations.

Loss carry forward in case of amalgamations

The most recent and consequential change for M&A deals in India is the curtailment of loss carry forward on amalgamation.[4] Under the previous practice, an amalgamated company effectively received a fresh eight year window to absorb the predecessor's accumulated losses, a feature that made distressed or loss making targets attractive vehicles for tax planning. Budget 2025 ended that ‘evergreening’, for amalgamations effected on or after 1 April 2025, the successor may carry forward losses only for the remaining balance of the original eight year period, measured from the year the losses first arose. Any valuation model that assumes a full eight year shield post-merger is, as a matter of law, overstating the available synergy.

Cross border tax considerations

Alongside this, scrutiny of cross-border structures has intensified. General Anti-Avoidance Rules (‘GAAR’) is being applied with greater confidence by tax authorities, and a tax residency certificate is no longer treated as conclusive proof of treaty entitlement where beneficial ownership is in question. Holding structures routed through familiar treaty jurisdictions should be tested afresh for commercial substance, such as board presence, decision making, and economic function, rather than assumed to be settled by earlier rulings or historical practice.

Indirect transfer rules remain a key consideration in offshore restructurings. Where a transaction abroad derives substantial value from Indian assets, Indian tax may still attach even though no Indian entity is a party to the sale agreement. This continues to shape intra-group reorganisations, private equity fund exits routed through offshore holding vehicles, and pre-IPO restructurings.

At the same time, the continuing expansion of tax and regulatory incentives in GIFT City has enhanced its appeal for fund, treasury and holding company structures. For many groups, the question is no longer whether to choose an offshore jurisdiction or India, but whether GIFT City offers a more efficient alternative. As a result, holding structures designed just a few years ago may merit reconsideration.

Sequencing the deal timetable

Taken together, the regulatory, structuring and tax considerations discussed above point to one practical imperative, that these workstreams need to be addressed in parallel and sufficiently early in the transaction timetable. Tax elections and structural choices are hardest, and costliest, to unwind once a scheme has been filed with the NCLT or Regional Director, a CCI notification has been made on a particular basis, or FEMA reporting has been completed on the basis of a specific valuation. Yet many Indian deal timetables still treat tax structuring, competition clearance and foreign exchange compliance as sequential workstreams that follow from a commercial term sheet rather than driving it.

A better sequenced timetable brings tax, competition, and foreign exchange counsel into the room at the term sheet stage, alongside the commercial and corporate teams, so the chosen structure, valuation methodology, and closing conditionality are stress tested together before they are locked into binding documentation. This matters most where a transaction combines several of the elements discussed here, for instance, a cross-border carve out funded partly through domestic acquisition finance, involving a target with a large workforce and a meaningful data protection footprint, structured through a fast-track merger. Each workstream affects the others, and a structure that looks efficient from a tax perspective alone can create friction at the CCI, or vice versa. Running these analyses in parallel, rather than in sequence, is now common practice among experienced Indian M&A deal teams, and it shows in the transactions that close on schedule.

The road ahead

The developments discussed underscore a broader reality, that regulatory and tax considerations can no longer be addressed only after commercial terms have been agreed. At the term sheet stage, deal teams should already be testing whether merger control, foreign investment and sector specific approvals have been mapped, whether data protection and workforce risks are understood, whether the proposed structure achieves its intended tax outcomes and supports the assumed utilisation of losses, and whether the transaction timetable accommodates each material workstream.

Experience suggests that M&A transactions in which these issues are addressed early are more likely to proceed on schedule, reduce execution risk and preserve value through closing and integration. In an environment of sustained regulatory and tax change, disciplined structuring is no longer a technical exercise, it is a prerequisite to successful deal execution.

[The authors are Executive Partner, Partner and Principal Associate, respectively, in Corporate and M&A practice at Lakshmikumaran & Sridharan Attorneys]

[1] Q2 Dealtracker 2026-Grant Thornton Bharat, available at <Q2 Dealtracker 2026>, last accessed on 24 August 2026.

[2] Homegrown Companies are making bolder global bets, available at <India File: Homegrown companies are making bolder global bets, 5 May 2026>, last accessed on 24 August 2026.

[3] RBI opens bank lending for acquisitions under new framework, available at < RBI opens bank lending for acquisitions under new framework - The Economic Times>, last accessed on 24 August 2026.

[4] Government rationalises amalgamation provisions- losses now limited to 8 years from original year, available at < Budget 2025: Government rationalises amalgamation provisions - losses now limited to 8 years from original year - The Times of India>, last accessed on 09 July, 2026.