Tax on amount received for fractional shares

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This query is : Resolved

Quick Summary

When you receive an amount for fractional shares during corporate actions like demergers or stock splits, it's generally taxed as capital gains. Initially, there was some confusion, but the consensus is that if the fractional share itself has a short holding period, it's treated as a short-term capital gain (STCG) taxed at 15%. However, if the fractional share is considered part of the original investment and that investment was held for over a year, it can be treated as long-term capital gains (LTCG) taxed at 10%.

San Gai

San Gai (Querist)
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20 March 2024 Hi Team,

Sometimes during corporate actions like demerge, bonus, split etc an amount is received for fractional shares. Could you please advise how it is taxed? Is it SHORT TERM CAPITAL GAIN? If yes it is taxed at 15% or as per income tax slab rate?

Kindly let me know if query is not clear.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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20 March 2024 It will fall under short term capital gains taxed under 15%.

San Gai

San Gai (Querist)
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22 March 2024 Hi Sir,
I have another query on the same issue. In case of demerger , as per COST OF ACQUISITION (COA) the original investment amount is divided into DEMERGED and TARGET Company's Investment Amount. And in case of fractional shares of TARGET Company amount gets credited instead of shares. So I still have confusion if the amount is taxable? If yes whether it is LTCG Tax (10% based on DEMERGED Company's investment more than a year old) or STCG at 15% or as per Income Tax slab rate?
Could you please advise?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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22 March 2024 It's LTCG as per income tax.

San Gai

San Gai (Querist)
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22 March 2024 Thank you Sir for quick response.

Could you please explain the term 'LTCG per Income Tax'?
Does it go through 10% LTCG Tax? Or is it LTCG but goes through tax rate as per Income Slab rates?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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22 March 2024 It's long term capital gains 10% tax applicable.

San Gai

San Gai (Querist)
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22 March 2024 Thank you Sir. Got it.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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22 March 2024 You are welcome...
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