Hinduja Global–NxtDigital Merger Faces Major Setback As Tax Panel Calls Deal 'A Tax Dodge' | Profit Exclusive

The Approving Panel has ruled that the merger of Hinduja Global Solutions Ltd. with NxtDigital Ltd. was an “impermissible avoidance arrangement” under India’s General Anti-Avoidance Rules (GAAR), in a major setback for the Hinduja Group arm.

The panel disallowed Rs 1,203 crore in tax set-offs claimed by HGSL and directed the Assessing Officer to recover the full amount of tax along with interest and penalties. It held that the primary purpose of the merger was to gain a tax advantage rather than achieve genuine commercial or operational growth.

According to the order dated Oct. 30, 2025, HGSL had sold its healthcare division for Rs 8,000 crore, generating capital gains of Rs 3,059 crore. Shortly after, it merged with loss-making NxtDigital, which had Rs 1,500 crore in accumulated losses. The merger allowed HGSL to offset those losses against its profits, reducing its tax liability by about Rs 281 crore.

The panel said that the search and seizure operations uncovered internal communications and executive statements describing “tax savings” as the main motive behind the merger. It found the transaction lacked commercial substance and that there was no real business synergy between the two companies.

It also ruled that Sections 72A and 2(19AA) of the Income Tax Act—provisions intended for genuine business reorganisations—had been misused. Approval from the National Company Law Tribunal, it said, does not prevent tax authorities from invoking GAAR where tax avoidance is evident.

Citing the Supreme Court’s McDowell & Co. judgement, the panel reaffirmed that artificial tax arrangements cannot qualify as legitimate tax planning. The order represents a major setback for HGSL and the wider Hinduja Group, underscoring the government’s strict stance on tax avoidance through corporate restructuring.