Dr Reddy’s Laboratories Limited, a global pharmaceutical major, has disclosed that it has received an order under Section 148A(3) of the Income Tax Act, 1961, dated 30 May 2025, from the Office of the Assistant Commissioner of Income Tax, Circle 8(1), Hyderabad. This development follows an earlier show cause notice dated 4 April 2025 under Section 148A(1), concerning the Assessment Year 2020-21.

The matter relates to the merger of Dr Reddy’s Holdings Limited (DRHL) into Dr Reddy’s Laboratories Limited (DRL). The scheme of amalgamation had been duly approved by the National Company Law Tribunal (NCLT), Hyderabad on 5 April 2022, with the appointed date being 1 April 2019.

Details of the Income Tax Order

According to the recent communication, the Income Tax Authority has deemed it appropriate to initiate reassessment proceedings under Section 148 for alleged income that may have escaped assessment following the DRHL merger. The earlier notice had sought justification from the company on why such a reassessment should not be conducted.

The latest order dated 30 May 2025 formalises the authority’s intent to reassess the income, marking a significant regulatory development for the company.

Quantum of Proposed Demand

The notice from the tax department mentions a proposed demand of Rs 2395,81,79,470 pertaining to the said assessment year. This follows the claim that certain tax liabilities may have been missed or escaped in connection with the corporate restructuring involving DRHL.

Company’s Response and Position

Dr Reddy’s Laboratories has stated that the company strongly believes there is no escapement of income under the said scheme of amalgamation. The merger was conducted in compliance with all applicable laws, including income tax regulations, and the process was fully ratified by the NCLT.

Further, the company is currently reviewing the order and notice and will take appropriate action in accordance with legal advice and tax strategy.

Importantly, the company has clarified that based on its internal assessment, there is no material impact on the financials, operations, or other activities of Dr Reddy’s Laboratories at this stage.

Indemnity Clause Under Scheme of Amalgamation

Dr Reddy’s Laboratories has also highlighted that the scheme of amalgamation contains an indemnity clause, which mandates that the promoters of the company will jointly and severally indemnify the company and its officers against any liabilities arising from the said merger.

This indemnity covers the company, its directors, employees, officers, representatives, or any authorised person, excluding the promoters, for any claims or tax liabilities linked to the merger process.

Corporate Governance and Disclosures

The company has made this disclosure under Regulation 30 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. This regulatory requirement mandates public companies to promptly inform exchanges about material events that may have an impact on operations, financials, or investor interests.

Dr Reddy’s Laboratories Limited is listed on multiple stock exchanges including:

• BSE Limited (Scrip Code: 500124)

• National Stock Exchange of India Ltd. (Scrip Code: DRREDDY)

• New York Stock Exchange (NYSE Code: RDY)

• NSE IFSC Ltd. (Stock Code: DRREDDY)

Conclusion

The tax reassessment proceedings initiated under Section 148 mark an important legal update for Dr Reddy’s Laboratories. However, the company has reassured stakeholders that it does not expect any material financial consequence and that it is reviewing the situation diligently.

The indemnification arrangement with promoters further ensures a layer of protection for the company against any resulting liabilities. Stakeholders and investors can expect further updates as the company takes necessary steps in response to this tax notice.

This disclosure demonstrates Dr Reddy’s commitment to regulatory transparency and corporate governance in the face of evolving legal obligations.

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