Tax Due Diligence in Rajasthan

What Is Tax Due Diligence?

Tax due diligence is a review of a business's tax compliance and tax position, carried out to identify past exposures and to understand how tax will affect a transaction. It examines whether the business has registered, filed, paid and withheld correctly under direct and indirect tax laws, what assessments, notices and disputes are open, and what tax liabilities could follow the business to a new owner.

The main areas are income tax, GST, tax deduction and collection at source, transfer pricing for related-party transactions, and, where relevant, customs, stamp duty and state levies. The review looks at returns and assessments, reconciliations between books and returns, input tax credit claims, withholding compliance, litigation, tax positions that are aggressive or uncertain, and the status of carried-forward losses and credits.

In a share purchase, historical tax liabilities stay with the company that the buyer acquires, so tax diligence is especially important. In an asset or business purchase, the liabilities largely stay with the seller, but indirect tax and successor liability rules still need attention. Findings feed into price, indemnities, warranties and structuring. Due diligence is an investigation of facts on the basis of documents and information provided, within an agreed scope. It is not a valuation, not an audit and not a formal legal, tax or accounting opinion, and it cannot detect what is not disclosed. Tax advice or an opinion on a tax position is given by a qualified tax professional or advocate.

Who Needs Tax Due Diligence?

• Buyers and investors acquiring shares or businesses
• Lenders and investors in later-stage funding rounds
• Promoters preparing for sale (vendor due diligence)
• Companies planning mergers, demergers or restructuring
• Joint venture partners and foreign investors entering India
• Businesses with open assessments, notices or disputes
• Boards wanting a health check of tax compliance

When Is Tax Due Diligence Required?

It is not generally a legal requirement, but it is advisable when:

• Shares of a company are being acquired, so historical liabilities transfer with the company
• The target has sales across states, e-commerce supplies or exports
• There are notices, audits or pending assessments
• The business has related-party or cross-border transactions
• The target claims substantial input tax credit or carried-forward losses
• Tax structuring of the transaction is being planned
• An investor or lender asks for a tax compliance review

What Our Tax Due Diligence Includes

The scope is agreed and typically covers:

• Understanding the transaction, entities and periods
• Request list and data room review
• Income tax: returns, assessments, notices, disputes, tax audit reports and tax positions
• Carried-forward losses, credits and the effect of change in ownership
• TDS and TCS compliance: deduction, deposit and returns
• GST: registrations, returns, reconciliation of sales and credits, input tax credit eligibility, e-invoicing and notices
• Transfer pricing: related-party transactions, documentation and filings
• Open and time-barred years, and exposure by year
• Contingent tax liabilities and provisions
• Tax indemnity and warranty points for the agreement
• Tax-efficient structuring observations at a high level
• Findings report with exposure ranges and recommended actions

Legal and Practical Considerations

Two income tax frameworks. The Income-tax Act, 2025 came into force on 1 April 2026. Assessments and proceedings for earlier years continue under the Income-tax Act, 1961, so a review for a transaction in 2026 will often involve both frameworks depending on the year. Provisions, section numbers and limitation periods should be confirmed for each year.

GST. The CGST Act, 2017 and state GST laws govern registration, returns, input tax credit and assessments. Common issues include credit claimed on ineligible items, mismatches between returns, and short payment, and notices may cover several years.

Withholding. Failure to deduct or deposit tax at source can lead to disallowance, interest and penalties. A review checks compliance in both directions: tax the target deducted, and tax deducted from payments to the target.

Transfer pricing. Related-party transactions must be at arm's length and documented where the law requires. Cross-border dealings carry additional risk.

Change of ownership. Changes in shareholding may affect carry-forward of losses and some tax benefits. This depends on the provisions applicable to the year and the entity, and should be reviewed before the deal.

Limits of review. The review is limited to information provided, public records and the agreed scope. Tax positions are judgemental, and tax authorities may take a different view. The report does not provide a formal tax opinion.

Indemnity and escrow. Exposures identified are usually addressed by specific tax indemnities, escrow or price adjustment, negotiated in the agreement.

Common Findings in Tax Due Diligence

• Input tax credit claimed on ineligible items or not matched with supplier returns
• TDS not deducted or deposited on certain payments
• Mismatch between GST returns and books
• Unreported or under-reported related-party transactions
• Open assessment years with unresolved disputes
• Tax positions not supported by documentation
• Carried-forward losses at risk after change of ownership
• Provision for tax not matching exposure

Professional Fees, Government Fees and Timeline

Due diligence carries no government fee. Fees of external tax professionals or advocates for formal opinions or representation, if engaged, are separate. Our professional fees depend on the size and number of entities, number of tax types and periods, quality of records and the speed needed. A review typically takes 10 to 20 working days after the data room is available.

Tax Due Diligence vs Financial Due Diligence vs Legal Due Diligence Coordination

Tax due diligence examines tax compliance and exposures. Financial due diligence examines earnings quality, working capital and net debt. Legal due diligence coordination organises the legal review of contracts, title, litigation and corporate records. Related services include Financial Due Diligence, Legal Due Diligence Coordination and Transaction Due Diligence.

Need Professional Assistance With Tax Due Diligence?

Past tax liabilities can follow the company you buy. The Legal Bank can help you structure and carry out a tax due diligence review. Share your requirement to discuss the next steps.