Grandfathered tax computation in case of merger and aquisitions

Pankaj (service) (1 Points)

16 January 2019

Hi,

How will the grandfathering clause apply in case of the merger and acquisition. For e.g. in case of Bandhan and Gruh Merger.

As per the merger announcement for every 1000 shares of Gruh, an investor will get 568 shares of Bandhan. Now someone who is holding Gruh from long term, how will be the LTCG is calculated if he sells the shares of Bandhan at later date. Also for treating LTCG are Bandhan shares required to be retained for 1+ years after the record date.

e.g.

1000 Gruh bought on 1st April 2010 for 200 RS

Price of Gruh on 31st Jan 2018 is 568 RS.

Today price of Gruh is 500 Rs. ( so effectively no capital gain because of grandfathering)

Now because of merger we will get 568 shares of Bandhan. What will be the cost of acquisition of these ?

Two option

1. Same as gruh price on 31st Jan 18 ( so 568*1000 ) - i.e. grandfathered

2. Same as the orignal price on 1st April 2010 ( so 200*1000). i.e. without grandfathering.

Regards

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Grandfathered tax computation in case of merger and aquisitions

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Originally posted by : Acche Din
	Has this question been answered? I am seeking the solution to same query and so will many people stuck with M&A affected stocks.

Originally posted by : Acche Din
	There has been no reply received so far. Schedule 112a will be applicable for sure but it is not clear how two different ISIN can be input in the given format, how merger ratio will be taken into account for different quantity of share bought and sold, how FMV of Gruh will apply to Bandhan shares now being sold.

Originally posted by : Acche Din
	1 For grandfathering, the FMV would be the highest price quoted on the recognised stock exchange on 31 January 2018. - which for Gruh is Rs 593.20 on NSE (you have considered the closing price of Rs 584.85) 2. When I sell 568 SHARE OF BANDHAN. it is equivalent of 1000 SHARES OF GRUH. So in my understanding, the FMV should be 1044 (calculated as (593.20 x 1000)/568). Remember you are now selling BANDHAN share so the equivalence to Bandhan is 1000/568 not the other way around.

Originally posted by : Acche Din
	As for ISIN, while we will put that of Bandhan Bank since that is the company whose shares we are selling, the Income Tax authority will be finding it difficult to match the FMV per share (which will be for Gruh) witn Bandhan ISIN. This too will remain a puzzle to be resolved.

Originally posted by : Acche Din
	There is absolutely no question of foregoing grandfathering benefit which has been granted by Finance Minister by Budget Bill in 2018 and parliament has passed it. I have written to CPC Grievance cell and twitted to FM, Revenue Secretary, PMO too. I intend to use FMV of Gruh as per calculation above and in cost of acquisition will use equivalent quantity of Gruh for quantity of Bandhan sold e.g. for every 568 shares sold, cost of acquisition of 100 Gruh will be used. This is correct conversion, logical application.

Originally posted by : jagdish chhugani
	Very nice ? No INE number for Bandhan for FMV as not listed so you need to insert INE of Gruh qty 1000 the aggregate cost of purchase you have insert FMV of Gruh the sale price of Bandhan 324 as on sale day so 1000x0.568x324 = Average sale price of Gruh Now the problem is you are selling Bandhan and Gruh sale price will not match with NSE or BSE as does not exist or they accept my method or they make modifications in the software when you insert INE of Gruh average sale tab should automatically convert to Bandhan average sale price based on Gruh to Bandhan share conversion ratio.