Understanding Demerger: Transfer of Undertakings at Book Value Under Income-tax Act, 1961

A "demerger" under the Income-tax Act, 1961, involves a demerged company transferring one or more undertakings to a resulting company through a scheme of arrangement. This process requires that all properties and liabilities of the undertaking are transferred at book value, and the resulting company issues shares to the demerged company's shareholders proportionately. The demerger must occur on a going concern basis and comply with conditions set by the Central Government. Specific provisions apply to public sector companies and entities established under statutory acts, with certain conditions for their reconstruction or splitting up to qualify as a demerger.

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