Honda, Hero Group may have to pay huge tax on de-merger
09 Mar 2011
Pursuing its new-found gold mine of mergers and acquisitions, the income tax department may make Japanese auto maker Honda pay Rs791 crore as capital gains tax, including the education cess, in the deal to divest its 26 per cent holding in Hero Honda, its joint venture with B M Munjal-led Hero Group, says a report.
According to a senior tax official, the income tax department is also considering raising a demand of Rs1,248 crore on the Hero Group for buying the stake at a hugely discounted price in an off-market deal.
Since Honda sold its stake off market, the capital gains that it earned by selling its stake will be taxed at 20 per cent, which rises to 20.60 per cent with education cess, according to a report in The Times of India.
The report cited an unnamed source to say saying that out of the total consideration of Rs3,841.83 crore paid by the Hero Group to buy 5.19 crore shares in the joint venture, most of the amount will qualify as capital gains.
He said that both the partners - Hero Group and Honda - made the initial investments at face value. Therefore, the total investments made by Honda to acquire Rs5.19 crore share would amount to approximately Rs10.38 crore.
Honda officials could not be contacted for comment.
