Capital in the case of sale of shares after Merger or Demerger

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Daya (Querist)
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15 December 2024 How to calculate capital gain in the case of sale of shares after merger merger or De-merger
what will be the date of acquisition and cost of acquisition in the case of merger or De-merger.

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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12 August 2025 Great question! Here’s how capital gains are calculated in case of sale of shares after merger or de-merger, including date of acquisition, cost of acquisition, and holding period under Indian tax laws:
1. Capital Gain in Case of Merger
Key points:
When a company merges into another and shareholders of the transferor company receive shares of the transferee company, the cost of acquisition and date of acquisition of the original shares carry over to the new shares.
The transfer of shares due to merger is not treated as a transfer for capital gains tax, so no capital gains arise at the time of merger.
When you sell the shares of the transferee company, capital gains are calculated by referring back to the cost and acquisition date of the shares of the transferor company.
Cost of Acquisition:
Cost of acquisition of the transferee company shares = Cost of acquisition of transferor company shares.
If you received additional shares, the cost is apportioned among the shares held in the transferee company on a reasonable basis (usually pro-rata).
Date of Acquisition:
The date of acquisition for the transferee company shares is considered the same as the date of acquisition of the shares in the transferor company.
2. Capital Gain in Case of De-merger
Key points:
In a de-merger, the undertaking/business is transferred from one company (the demerged company) to another (the resulting company).
Shareholders of the demerged company receive shares in the resulting company.
The cost of acquisition of the shares in the resulting company will be calculated based on the cost of acquisition of shares of the demerged company.
Cost of Acquisition:
Total cost of acquisition of shares of the demerged company is apportioned between:
Shares held in the demerged company post demerger, and
Shares received in the resulting company.
The apportionment is based on the net asset values of both companies immediately after the demerger (usually on a fair and reasonable basis).
Date of Acquisition:
The date of acquisition of shares in both companies is treated as the date on which the original shares in the demerged company were acquired.
3. Holding Period
The holding period of shares in the transferee company (merger) or resulting company (demerger) includes the holding period of shares in the original company.
So, holding period is continued from the date you acquired the original shares.
4. Summary Table
Scenario Cost of Acquisition Date of Acquisition Holding Period
Merger Cost of shares of transferor company Date of acquisition of transferor company shares Continuous from original shares
De-merger Cost apportioned between shares in both companies based on net asset values Date of acquisition of demerged company shares Continuous from original shares
5. Example (Merger)
You bought 100 shares of Company A on 1 Jan 2020 at ₹100 each → Cost = ₹10,000.
Company A merges into Company B.
You get 50 shares of Company B after merger.
Cost of acquisition of 50 shares of Company B = ₹10,000 (original cost).
Date of acquisition of Company B shares = 1 Jan 2020.
If you sell shares of Company B later, capital gains will be calculated using ₹10,000 as cost and 1 Jan 2020 as acquisition date.

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