IDBI Bank Divestment – Centre Plans Tax Waivers For Buyer To Attract More Suitors: Report

The finance ministry is looking to relax a tax clause, which would require the buyer of IDBI Bank to pay additional tax if the share price rises post the final bid

The Centre is likely to waive some tax norms for the buyer of IDBI Bank in a bid to attract more suitors for a majority stake sale in the lender, quoting two government sources news agency Reuters reported on Tuesday. The government has already extended the deadline for initial bids.

According to the report, the finance ministry is looking to relax a tax clause, which would require the buyer of IDBI Bank to pay additional tax if the share price rises post the final bid.

Share prices tend to increase after financial bids are invited by the government, the official said, noting that it would be "unfair" to ask the new buyer to pay tax on an increase in price from the time bids are placed to the closure of transaction.

In case the share prices of IDBI Bank increase after financial bids are formally placed, the difference in share price may be considered as "other income" for the buyer as per tax laws, said Om Rajpurohit, a partner at tax firm AMRG & Associates. "This will be taxable at 30 per cent plus a surcharge and cess," Rajpurohit added.

The government's planned tax waiver will allow a potential buyer to avoid this levy.

The government and Life Insurance Corporation together hold nearly 95 per cent in IDBI Bank, and have sought initial bids from investors to buy a 60.72 per cent in the bank. Last week, it extended the deadline for submitting initial bids until January 7. Once the government receives initial bids expressing interest from buyers, the Reserve Bank of India would vet them to see if they meet the central bank's "fit and proper" criteria.

The finance ministry did not immediately reply to Reuters’ requests for comment.

On Tuesday, the shares of IDBI Bank were trading at Rs 56.25 apiece, down 1.66 per cent on the BSE.

Recently, a consortium of foreign funds and investment firms can buy more than 51 per cent stakes in IDBI Bank, according to a government clarification. Although current RBI guidelines restrict foreign ownership of new private banks, the Department of Investment and Public Asset Management (DIPAM) has said the rule would not apply to an existing entity like IDBI Bank, a Reuters report said.