Tax Due Diligence for M&A Transactions

Overview

Tax due diligence is among the most consequential components of any acquisition. A target company's tax health under the Income Tax Act 1961, CGST Act 2017, state GST laws, and customs regulations determines not just the purchase price but whether the deal should proceed at all. Legacy income tax demands, disputed input tax credit reversals, unexplained cash credits, and transfer pricing adjustments frequently surface after signing — when rectification is costly and leverage is lost. Corpus Juris Legal conducts granular tax due diligence that goes beyond reviewing assessment orders. We examine withholding tax compliance, cross-border payment characterisation, GST reconciliation with books of account, customs classification positions, and pending departmental inquiries. Our direct tax analysis covers Section 143(3) assessments, disallowances, section 68/69 additions, MAT credit, and pending ITAT or High Court appeals. Indirect tax review covers GST registration history, ITC eligibility, reverse charge compliance, and state entry tax/VAT legacy claims. For buy-side mandates, every identified exposure is quantified, risk-rated, and mapped against deal protection mechanisms — price adjustments, indemnities, and escrow arrangements. For sell-side mandates, we prepare a vendor due diligence report that positions the target favourably and pre-empts buyer negotiation on tax grounds. In cross-border deals, we also analyse the tax implications of the acquisition structure itself — whether an asset deal, slump sale, or share acquisition is more efficient under the Income Tax Act 1961 and FEMA 1999.

Key Service Components

• ◆Direct tax due diligence — assessment history, pending appeals, withholding tax compliance
• ◆Indirect tax review — GST, customs, legacy VAT/service tax exposure
• ◆Transfer pricing analysis for transactions with associated enterprises
• ◆Section 68/69 addition risk and unexplained credits identification
• ◆MAT credit carryforward and deferred tax asset verification
• ◆GST ITC eligibility and reconciliation with GSTR-2A/2B
• ◆Customs classification disputes and pending CESTAT matters
• ◆Deal structure tax optimisation — slump sale vs share sale vs asset purchase
• ◆Tax indemnity and escrow advisory for acquisition agreements
• ◆Vendor-side tax due diligence report preparation

Our Approach

We deploy a joint direct and indirect tax review team on every mandate, ensuring that GST and customs exposures receive the same rigour as income tax. Every finding is presented with a commercial recommendation — not just a list of risks — enabling deal teams to make informed decisions quickly.

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