Income tax: Taxation of shares and fractional shares acquired on the merger

In the merger of HDFC and HDFC Bank, I’m entitled to some fractional shares of HDFC Bank Limited. When and the way the transaction will get taxed? How do I report fractional entitlement in Schedule 112A of ITR which doesn’t settle for fractional portions of shares?

As per the provisions of Section 47 of the Income Tax Act, allotment of shares on the merger of two firms just isn’t handled as a switch and due to this fact there are not any tax implications in respect of shares of HDFC Bank Ltd. allotted to you in respect of shares held by you in HDFC Ltd. As and when the shares allotted on the merger are offered, the mixed holding interval of HDFC Limited and HDFC Bank Ltd. Is to be thought-about for figuring out whether or not the income are short-term capital features or long-term capital features. The price incurred to accumulate HDFC Ltd. shares is to be taken under consideration for figuring out the price of HDFC Bank shares allotted and the price of the shares of HDFC Bank Limited offered is to be computed accordingly. If the shares have been acquired previous to 1st February, 2018 the closing worth of the HDFC Ltd. shares on thirty first January 2018 might be taken as the price of the shares of HDFC Limited offered STT is paid each on buy and sale. The long-term capital features on listed shares and fairness mutual funds are taxed 10% past the preliminary one lakh with out indexation. The short-term capital features are taxed at a flat charge of 15%.

As far as cash acquired in respect of fractional entitlement of shares is worried, for the reason that fractional shares will not be offered by you and as such STT just isn’t paid in respect of such fractional shares, the identical can’t be taxed underneath Section 112A which is relevant if STT has been paid. 

In my opinion, the long-term capital features on such fractional shares can be taxed at 20% after making use of the indexation on the proportionate price of fractional shares in respect of cash acquired by you. Please word you’ll have to take the precise price of buy and apply indexation to it. The grandfathering advantage of taking the closing worth on thirty first January 2018 in case the shares have been acquired previous to 1st February 2018 in such case just isn’t accessible for my part.

If the shares of HDFC Limited have been held for lower than 12 months, the sale of revenue on fractional shares of HDFC Bank Limited can be handled as short-term capital features and taxed on the slab charge relevant to you.

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Updated: 09 Aug 2023, 07:37 AM IST