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The Ministry of Finance (MoF) has rejected a key recommendation from the Ministry of Corporate Affairs (MCA) seeking tax exemption for loan waivers granted under resolution plans approved through the Insolvency and Bankruptcy Code (IBC). This disagreement between two departments headed by Union Finance Minister Nirmala Sitharaman is laid bare in theSelect Committee report on the Income Tax Bill, 2025, tabled in Parliament on July 21. The MCA had urged the Committee to consider exempting such wa
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FAQ :
The MCA recommended that loan waivers granted under IBC resolution plans should be exempt from income tax, arguing that taxing them defeats the purpose of corporate revival.
No, the Ministry of Finance rejected the recommendation, stating it was a policy change beyond the scope of the current Income Tax Bill 2025.
The Ministry of Finance pointed out that relief is already available under Section 79 of the Income Tax Act for carrying forward losses, which can offset income from loan waivers. They also cited judicial precedents that consider loan waivers taxable income.
Industry experts believe the continued taxation of waived loans could reduce the attractiveness of distressed asset deals, potentially leading to fewer resolution applicants and impacting the recovery prospects for creditors.
Under the proposed Income Tax Bill 2025, gains from loan waivers are generally taxed under Sections 28(iv) and 41(1), unless they can be offset by prior accumulated losses.
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