Individual Income tax implecations when two foreign companies merge and stock transfer occurs

Sampath K (Engineer) (21 Points)

25 May 2024  

Hi All,
I was holding 100 shares of a foreign US Company A. Another Foreign Company B has acquired A with a deal wherein 50% of A shares will be paid out as cash @ $80/share and the rest 50% of A stock becomes Company B stock wherein 4 Company A stocks get converted to 1 Company B stock. The acquisition was completed in November. The Fair Market Value of Company B stock on the merger date is $400/share. The 100 Company A shares acquisition cost is $50/share. Out of the 100 shares, 50 were paid as cash (50*$80) and the other 50 were converted as Company B stock.

Since 4 Company A shares (4*$50 = $200) became 1 Company B stock whose Fair Market Value on the date of merger was $400, there is an unrealized gain of $200*(50/4) overall on the merger date.

  1. Do we need to pay capital gains tax in India for the unrealized gains of the converted stock portion?
  2. In the US, the converted shares will retain the acquisition date of original Company A shares for capital gains calculation. In India, can we consider the same acquisition/buying date of Company A shares for the converted Company B stock as well for capital gains (LTCG/STCG) calculation?
  3. How should we report this conversion activity in Schedule FA Table A3 in ITR? Will it be like the 50% company shares were sold on the merger date at Company B FMV rate of $400 and then we acquired Company B shares with the same buying date of Company A shares?