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

livemint.com:

HDFC Bank, I am entitled to some fractional shares of HDFC Bank Limited. When and how the transaction will get taxed? How do I report fractional entitlement in Schedule 112A of ITR which does not accept fractional quantities of shares? As per the provisions of Section 47 of the Income Tax Act, allotment of shares on the merger of two companies is not treated as a transfer and therefore there are no 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 sold, the combined holding period of HDFC Limited and HDFC Bank Ltd. Is to be considered for determining whether the profits are short-term capital gains or long-term capital gains. The cost incurred to acquire HDFC Ltd.

shares is to be taken into account for determining the cost of HDFC Bank shares allotted and the cost of the shares of HDFC Bank Limited sold is to be computed accordingly. If the shares were acquired prior to 1st February, 2018 the closing price of the HDFC Ltd. shares on 31st January 2018 will be taken as the cost of the shares of HDFC Limited provided STT is paid both on purchase and sale.

The long-term capital gains on listed shares and equity mutual funds are taxed 10% beyond the initial one lakh without indexation. The short-term capital gains are taxed at a flat rate of 15%. As far as money received in respect of fractional entitlement of shares is concerned, since the fractional shares are not sold by you and as such STT is not paid in respect of such fractional shares, the same cannot be taxed under Section 112A which is applicable if STT has been paid.