Dr. Reddy’s Receives ₹2,395 Crore Notice from Income Tax Department

Dr. Reddy’s Laboratories Ltd recently received a show-cause notice from the Office of the Assistant Commissioner of Income Tax, Circle 8(1), Hyderabad. The notice was issued under Section 148A(1) of the Income Tax Act, 1961. It relates to the reassessment of income for the assessment year 2020–21 (financial year 2019–20).

As of 9:40 am on April 7, 2025, Dr. Reddy’s Laboratories share price was trading at ₹1,089, a 1.89% down, with a decline of 15.73% over the past six months and 9.79% over the past year.

Reason for the Proposed Demand

The notice refers to the merger of Dr. Reddy’s Holdings Ltd (DRHL) into Dr. Reddy’s Laboratories Ltd (DRL). This merger was part of a scheme of amalgamation that was approved by the National Company Law Tribunal (NCLT), Hyderabad, on April 5, 2022, with effect from April 1, 2019. 

According to the income tax department, income may have escaped taxation as a result of this merger.

Demand Raised

The notice proposes a tax demand of ₹2,395.81 crore (₹23,95,81,79,470). The tax authority has asked the company to respond on why a notice under Section 148 should not be issued for the assessment of the income in question.

Company’s Filing

Dr. Reddy’s stated in a regulatory filing dated April 5, 2025, that the merger was conducted in compliance with all legal and tax requirements. The company has also mentioned that it is in the process of reviewing the notice and will respond with the necessary information and clarifications as required.

According to the company, there is no material impact on its financials, operations, or other activities at this stage due to the notice.

Promoter Indemnity Clause

The merger scheme includes a clause stating that the promoters of the company will jointly and severally indemnify Dr. Reddy’s Laboratories Ltd and its associated personnel against any liabilities arising from the amalgamation.

Conclusion

The company has not yet issued a formal response to the tax authority. Further updates may follow based on the outcome of the review and response process.

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