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

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.

Do we need to pay capital gains tax in India for the unrealized gains of the converted stock portion?
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?
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?

Hey Sampath, great detailed question on cross-border mergers and Indian tax implications! Let me break down your queries clearly:

Scenario Recap:

Holding: 100 shares of Foreign Company A (cost ₹50/share)
Merger:
- 50 shares paid in cash @ $80/share → Realized gain here
- 50 shares converted into Company B shares, ratio 4:1 (4 shares A = 1 share B)
- FMV of Company B shares on merger date = $400/share
Unrealized gain on converted shares:
- Cost basis for 50 shares A = 50 × 50 = $2,500
- FMV of B shares received = (50/4) × 400 = $5,000
- Unrealized gain = $2,500 difference

1. Capital Gains Tax on Unrealized Gains of Converted Shares in India?

Indian tax law treats a "transfer" for capital gains purposes as a sale or disposal.
In case of merger or exchange of shares in foreign companies, the conversion of Company A shares into Company B shares is considered a transfer event, triggering capital gains tax.
However, if cash is not received and shares are exchanged, then the gain is considered "unrealized" until the new shares are sold — subject to treaty and specific rules.
For foreign shares, the Income Tax Act may treat such a share swap as a transfer triggering capital gains tax immediately, or defer it based on specific provisions (like section 47 for amalgamation, but mostly for Indian companies).
Practical approach:
The cash portion definitely triggers capital gains tax on the realized gain (₹80 - ₹50 per share × 50 shares).
The stock swap portion is generally considered a transfer in India and gains should be reported for tax purposes at the FMV on merger date (₹400/share for B shares). So, capital gains tax may arise on unrealized gains as well at the time of merger, unless you can rely on any treaty or exemption.
Recommendation: Consult a tax expert for any treaty benefits or specific exemptions applicable for your case.

2. Acquisition Date for Capital Gains Calculation for Converted Shares?

India does not explicitly provide the "carry-forward" of acquisition date for foreign stock conversions in mergers like the US tax system does.
For Indian tax capital gains, the acquisition date for the new shares (Company B) is generally the date of transfer (merger date), unless a specific exemption or rollover relief applies.
Hence, your holding period for the Company B shares usually starts from the date of merger in India.

3. Reporting in ITR Schedule FA Table A3?

Schedule FA (Foreign Assets) requires reporting of foreign shares bought, sold, or held.
For your case:
- Report the sale of 50 Company A shares for cash at $80 per share.
- Report the transfer of 50 Company A shares in exchange for Company B shares at FMV $400/share (converted shares). This is also a disposal of Company A shares.
Then report acquisition of Company B shares at FMV on merger date ($400/share) as new purchase.
You do not carry forward the original purchase date of Company A shares for Company B shares.

Summary:

Query	Indian Tax Treatment - Likely
Tax on unrealized gain on swapped shares?	Taxable capital gains on conversion at FMV unless exempted
Acquisition date for new shares?	Date of merger (conversion date), no carry-forward
Reporting in ITR Schedule FA?	Sale of A shares (cash portion & swapped portion), purchase of B shares at FMV

Final advice:

Cross-border mergers are complex; treaty benefits and local laws could provide relief.
Consult a tax advisor with international tax experience.
Maintain full documentation of merger terms, FMV calculations, and stock conversion.