Capital gain on share swap
This query is : Resolved
09 May 2025
when and at which amount capital gain is arise when one company purchase a wholly owned subsidiary from shareholder of that company in consideration of purchasing company's share that is to share swap ..explain me tax implications from point of view of that shareholder as when and on which amount capital gain tax is arise.
12 August 2025
When does Capital Gain arise?
Capital Gain arises at the time of transfer of shares in the subsidiary.
The act of receiving shares in Parent Co. is considered capital receipt (not cash), so it's a non-monetary consideration.
How to calculate Capital Gain & its amount?
Cost of Acquisition of Subsidiary shares: This is the purchase price or fair market value (FMV) if inherited or gifted.
Full Value of Consideration:
The FMV of the shares received in Parent Co. on the date of exchange.
This FMV is considered the sale price for capital gain calculation.
Capital Gain = FMV of Parent Co. shares received – Cost of acquisition of Subsidiary shares
Tax Implications for Shareholder:
The shareholder is liable to pay capital gains tax on the gain computed above.
The nature of capital gain (Short-term or Long-term) depends on the holding period of the subsidiary shares:
Long-term capital gain (LTCG): If shares held > 12 months.
Short-term capital gain (STCG): If shares held ≤ 12 months.
The capital gain tax rate will be as per the applicable income tax provisions:
LTCG on listed shares with STT: 10% without indexation.
STCG on listed shares with STT: 15%.
Cost of shares received in Parent Co.:
The FMV of Parent Co. shares received becomes the cost of acquisition for the shareholder for those shares for future capital gains when sold.
Important Notes:
Section 47(iii) of Income Tax Act provides exemption in certain conditions if shares in a subsidiary are exchanged for shares in the holding company during a scheme of amalgamation or demerger.
If not under any such exemption, normal capital gains provisions apply.
Capital Gain arises at the time of transfer of shares in the subsidiary.
The act of receiving shares in Parent Co. is considered capital receipt (not cash), so it's a non-monetary consideration.
How to calculate Capital Gain & its amount?
Cost of Acquisition of Subsidiary shares: This is the purchase price or fair market value (FMV) if inherited or gifted.
Full Value of Consideration:
The FMV of the shares received in Parent Co. on the date of exchange.
This FMV is considered the sale price for capital gain calculation.
Capital Gain = FMV of Parent Co. shares received – Cost of acquisition of Subsidiary shares
Tax Implications for Shareholder:
The shareholder is liable to pay capital gains tax on the gain computed above.
The nature of capital gain (Short-term or Long-term) depends on the holding period of the subsidiary shares:
Long-term capital gain (LTCG): If shares held > 12 months.
Short-term capital gain (STCG): If shares held ≤ 12 months.
The capital gain tax rate will be as per the applicable income tax provisions:
LTCG on listed shares with STT: 10% without indexation.
STCG on listed shares with STT: 15%.
Cost of shares received in Parent Co.:
The FMV of Parent Co. shares received becomes the cost of acquisition for the shareholder for those shares for future capital gains when sold.
Important Notes:
Section 47(iii) of Income Tax Act provides exemption in certain conditions if shares in a subsidiary are exchanged for shares in the holding company during a scheme of amalgamation or demerger.
If not under any such exemption, normal capital gains provisions apply.
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