HDFC twins merger: Income tax implications that HDFC Bank shareholders should know

livemint.com:

HDFC Bank has allocated over 311 crore new shares of the bank to shareholders of merged entity HDFC Ltd. The share allocation was done as per the swap ratio announced As per the scheme, every HDFC shareholder has got 42 shares of HDFC Bank for every 25 shares they hold.

Generally, if you receive any capital asset for an "exchange" with another capital asset, the same is treated as a "transfer" and is taxable as capital gains. According to tax and investment expert Balwant Jain there are no immediate effects on the merger of the shares "In a case of a merger, if you receive shares of the new company in place of shares that you already had in the old company, it is not treated as a "transfer of capital asset" and hence, there are no capital gains," said Balwant Jain.

Capital gains on the sale of shares are calculated on the basis of the holding period and the date of acquisition of shares. If someone receives shares as part of a merger, the holding period is counted from the date of purchase of the amalgamating company’s shares (HDFC Ltd in this case), said Sambhav Daga, partner at Sunil Johri & Associates.

Now, let’s assume, you want to sell HDFC Bank shares today as now they are listed on the exchanges. This will be subject to long-term capital gains tax (LTCG).

In this case, the holding period will be counted of HDFC Ltd, and LTCG will apply, explained Balwant Jain In the case of listed companies, equity shares held for more than 12 months are classified as long-term capital assets, while those held for a shorter period are classified as short-term capital assets. If you hold shares in HDFC Ltd, Know the income tax implications due to the merger for you as a shareholder, Sambhav Daga has explained in a series of tweets.