Group & Family Business Restructuring: The Process, Start to Finish
The mechanics of Group & Family Business Restructuring are what clients ask about once they have decided to proceed. The questions below are the ones raised most often in practice; the full scope of the service is on the Group & Family Business Restructuring page.
How is a demerger different from a slump sale — and which one should we use?
A demerger, under Section 2(19AA) of the Income-tax Act 1961 (for income up to FY 2025-26; the Income-tax Act 2025 carries corresponding provisions from tax year 2026-27, so the 1961 Act section numbers cited in this answer refer to the earlier period), is a court/NCLT-sanctioned scheme where a business undertaking is transferred to a resulting company at book value, with shareholders of the demerged company receiving proportionate shares in the resulting company — it is designed to be tax-neutral if the strict statutory conditions are met. A slump sale, under Section 2(42C), is a transfer of a business undertaking as a going concern for a lump-sum consideration, without assigning individual values to assets — it is a taxable transaction, with capital gains computed under Section 50B on the difference between sale consideration and net worth. Demergers are slower (they go through NCLT) but can be tax-neutral; slump sales are faster but trigger tax; timelines depend on the case, so confirm the current processing time.
In practice: It is easy to default to a slump sale purely because it is faster, without realising the tax cost. If the underlying objective supports it — genuine business separation with proportionate shareholder continuity — a demerger can be materially more tax-efficient. We always model both before recommending.
Our family business is run through an HUF. How does that affect restructuring?
A Hindu Undivided Family (HUF) is a distinct taxable entity under the Income-tax Act, and its property is held jointly by coparceners under the Hindu Succession Act 1956 (as amended in 2005 to include daughters as coparceners by birth). If HUF assets are part of the group being restructured, a total partition under Section 171 of the Income-tax Act 1961 (for income up to FY 2025-26; the Income-tax Act 2025 carries a corresponding provision from tax year 2026-27) may be required — a partial partition made after 31 December 1978 is not recognised for tax purposes, and a partition must be formally recognised by the Assessing Officer to be effective; an unrecognised partition continues to be assessed as HUF income. HUF partition is a division of pre-existing joint ownership, not a transfer, and does not attract capital gains — but the mechanics differ meaningfully from a company-level restructuring.
In practice: We frequently find families that believe an HUF has been 'informally divided' for years, with no Section 171 recognition ever obtained. This creates a live tax exposure — the HUF continues to be assessed on the undivided property's income until formal partition is recognised. We check this early in any family restructuring diagnostic.
How does PNPC value the businesses involved in a restructuring?
Valuation depends on the transaction: a share exchange ratio for a merger or holding company swap typically uses a combination of Discounted Cash Flow (DCF), comparable company multiples, and net asset value, reconciled by a Registered Valuer (a requirement under Section 247 of the Companies Act for company law valuations). A slump sale requires computation of 'net worth' under Section 50B for tax purposes, which follows a specific statutory formula rather than a market valuation. A family settlement dividing assets may use a simpler fair-value assessment agreed among the family, though we recommend an independent valuation even here to reduce the risk of a later dispute about fairness.
In practice: We insist on an independent valuer even for internal family transactions with no external investor involved. A valuation performed or heavily influenced by one family branch invites the others to distrust the entire restructuring — independence protects the process, not just the tax position.
What is Section 72A and how does it affect losses in a merger?
Section 72A of the Income-tax Act allows the carry-forward and set-off of accumulated business losses and unabsorbed depreciation of the amalgamating company in the hands of the amalgamated (resulting) company, but only where the amalgamation meets specific conditions — including that the amalgamating company was engaged in the business for a minimum period, and that the amalgamated company continues that business, and (for certain sectors) continues to hold at least a specified proportion of the original fixed assets for a minimum period. If these conditions are not met, the losses lapse rather than transferring.
In practice: We check Section 72A eligibility before recommending a merger where loss carry-forward is a driver — the conditions are specific enough that a merger structured without checking them upfront can lose the very tax benefit the family expected.
Is stamp duty payable on a restructuring scheme, and how much?
Yes — most Indian states levy stamp duty on the order of the NCLT sanctioning a scheme of arrangement, treating it similarly to a conveyance for the assets and liabilities transferred. The rate and basis vary significantly by state: Maharashtra and Karnataka, for example, apply detailed stamp duty schedules specifically addressing schemes of arrangement, often calculated on the value of assets transferred or the market value of shares issued, subject to caps in some states. Family settlement deeds and partition deeds also attract stamp duty, though several states apply concessional rates for genuine family partitions compared to a standard conveyance.
In practice: Stamp duty is one of the most state-variable costs in a restructuring and is easy to underestimate if the group has entities or property across multiple states. We compute this early in the route-modelling stage, not as an afterthought at execution.
Can NRI or foreign family members be part of a restructuring?
Yes, but cross-border elements bring FEMA into the picture. If an NRI or foreign family member is allotted, transferred, or divested of shares as part of the restructuring, this typically requires reporting under FEMA — Form FC-TRS for share transfers involving a person resident outside India, or Overseas Direct Investment (ODI) reporting via Form FC under the Foreign Exchange Management (Overseas Investment) Rules, 2022, if the restructuring involves an Indian resident acquiring interest in a foreign entity as part of the group structure. Sectoral FDI caps and pricing guidelines under FEMA also apply to the valuation used in such transfers.
In practice: PNPC's Dubai office coordinates directly with the India team on any restructuring involving UAE-resident family members or entities, so FEMA reporting and UAE-side tax and residency implications are handled as one coordinated engagement rather than two disconnected workstreams.
How is a discretionary trust taxed differently from a specific trust?
In a specific trust, where beneficiaries and their shares are determinate and known, the trust's income is generally taxed in the hands of the beneficiaries directly, in the same manner as if they had received the income themselves — this is called the 'representative assessee' basis under Sections 160-161 of the Income-tax Act. In a discretionary trust, where the trustees have discretion over how income or corpus is distributed among a class of beneficiaries, the trust's income is typically taxed at the Maximum Marginal Rate (MMR) in the hands of the trustee, under Section 164, unless specific exceptions apply under the provisos to Section 164(1) (such as a trust created by Will exclusively for the benefit of a relative dependent on the settlor for support and maintenance, where it is the only trust so declared by the settlor).
In practice: The MMR exposure on discretionary trusts is a material planning consideration — families sometimes choose a specific trust structure purely to avoid it, even where some discretionary flexibility would otherwise have been preferred. We model the tax cost of both structures before the trust deed is finalised.
What is the difference between amalgamation and absorption?
Both are forms of merger under company law, but the distinction matters for how the transaction is structured. In an amalgamation, two or more companies combine to form a new entity, or one or more companies merge into an existing company such that the merging companies cease to exist and their shareholders receive shares in the resulting/surviving company. 'Absorption' is sometimes used to describe a merger where one company (the transferee) survives and absorbs another (the transferor), which is the more common structure in Indian group restructurings — a subsidiary merging into its parent, for instance. Tax treatment under Section 2(1B) and Section 47(vi) of the Income-tax Act applies broadly to both where the statutory conditions (shareholding continuity, asset transfer at book value) are satisfied.
In practice: In practice, most family group mergers we handle are absorptions — consolidating multiple operating or holding entities into one surviving company — rather than the creation of an entirely new entity. We use the terminology precisely in the scheme document since courts and tax authorities read these documents literally.
How does PNPC handle confidentiality in a sensitive family restructuring?
Family restructuring engagements often involve sensitive information — succession intentions not yet communicated to all family members, valuations of significant personal wealth, or the existence of a family disagreement. We work under a formal engagement letter with confidentiality terms, restrict the internal team involved to those directly working on the engagement, and take direction from the family (often the senior-most decision-maker initially engaging us) on when and how information is shared with other family members as the process unfolds.
In practice: A wider family conversation may not be appropriate until later in the engagement. We follow the family's lead on timing and sequencing of internal disclosure — this is a relationship of trust, not just a technical engagement.
Where this sits in the wider engagement
Group & Family Business Restructuring rarely arrives on its own. The statutory basis and the current requirements are set out on the Group & Family Business Restructuring service page, and the related services are grouped under Corporate Finance.
What PNPC does
PNPC Global has practised since 1986 across India and the UAE. On Group & Family Business Restructuring we take the work end to end — reviewing the facts, preparing and filing what is required, and dealing with the authority through to closure.