I had bought 200 shares of HDFC Ltd on February 10, 2010, at the average price of ₹550. The market price of these shares as on January 31, 2018, was ₹1,963. Now I have been allotted 336 shares of HDFC Ltd on account of merger of HDFC Ltd with HDFC Bank. If I sell these shares at the current market price, say, ₹1,690,what will be the tax implication of capital gain? Kindly illustrate calculation of capital gain for the purpose of paying income tax.

Brij Lal Dhiman

Issue of shares consequent to merger of companies is not considered taxable under Income Tax Act, 1961, if the following two conditions are satisfied:

All assets and liabilities are transferred. At least 75 per cent of the amalgamating company’s shareholders (in terms of value) should become shareholders of the amalgamated company.

If the merger of HDFC Bank with HDFC Limited satisfies these conditions, then issue of shares of HDFC Limited to the shareholders of HDFC Bank consequent to the merger is not taxable.  We understand such shares are listed and securities transaction tax (STT) has been paid on both acquisition and transfer of such shares. At the time of sale of these shares, period of holding will be considered from the date on which HDFC Bank Limited shares were acquired. In your case, the period of acquisition will start from February 10, 2010.

Assuming that entire 336 shares are sold during FY 23-24 at ₹1,690 per share, capital loss computation would be:

Sale consideration: 336*1690 = ₹5,67,840

Cost of acquisition: 336 * 1963 = ₹6,59,568

Long term capital loss = ₹91,728

This loss can be set off against long term capital gain.

Note: The cost of acquisition of a listed equity share acquired by the taxpayer before February 1, 2018, shall be deemed to be the higher of the following:

a) The actual cost of acquisition of such asset (₹550); or

b) Lower of following:

(i) Fair market value of such shares as on January 31, 2018 (₹1,963); or

(ii) Actual sales consideration accruing on its transfer (₹1,690)

On the other hand, if entire 336 shares are sold at ₹2,500 per share, capital gains for FY 23-24 will be computed as follows:

Sale consideration:  336*2500 = ₹8,40,000

Cost of acquisition:  336 * 1963 = ₹6,59,568

Long term capital gains  = ₹1,80,432

Out of this, ₹1,00,000 will be exempt under Section 112A (assuming that you do not have any other long term capital gain eligible for exemption) and the remaining capital gain of ₹80,432 would be taxable at 10 per cent plus applicable rate of surcharge and cess.

The author is Partner, Deloitte India