Budget 2026: Over the past decade, the Indian market has distinguished itself globally. Today, India is open to foreign investment in almost every sector, and Indian companies are freely expanding their presence in markets around the world. Our stocks and government bonds are now part of major global indexes, and the use of the rupee in international trade has also increased. This is the result of the government's continuous reforms to FEMA, FDI, and SEBI regulations. Despite all this, some complexities remain in tax laws, causing concern for foreign investors and companies. All eyes are now on the upcoming Budget 2026 to see if the government will address these anomalies.

The Double Sword of Tax on Shareholders
It is often seen that an Indian company is owned by a foreign company (say, Company A). Restructuring is a common process in global business. If foreign company A merges with another foreign company B, the shares of the Indian company also technically transfer from A to B.

Indian income tax law creates a peculiar situation here. According to the law, such share transfers between foreign companies are tax-exempt (provided certain conditions are met), but the problem arises when it comes to shareholders. When shareholders of company A become shareholders of company B, there is no clear tax exemption for them under the current rules. It is quite surprising that a transaction that the government considers tax-free at the company level can result in a tax burden on shareholders.

The Troubles of Foreign Branches of Indian Companies
The issue is not limited to foreign companies, but also applies to Indian companies that have now become multinationals. Suppose an Indian company has several subsidiaries abroad. If India wants to merge two of its foreign subsidiaries to streamline its business, it could face a high cost.

Under current income tax rules, an Indian company reorganizing its overseas branches is subject to capital gains tax. There is no provision for tax neutrality. Consequently, Indian companies are reluctant to properly restructure their global businesses, fearing it could increase their tax burden unnecessarily. Internationally, the trend is to keep such internal changes tax-free.

Obstacles to Becoming a Global Business Hub
India is positioning itself as a global hub for capital, innovation, and corporate headquarters. Therefore, our tax system must adapt to modern cross-border needs. If the government simplifies these rules and clarifies the situation regarding overseas restructuring in Budget 2026, it will not only remove confusion but also promote ease of doing business.

Experts believe that processes such as de-mergers or spin-offs should also be made tax-exempt. This reform will eliminate unintended tax liabilities and help India become a leading destination for global corporate restructuring.

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