LTCG on transferee company shares on partial demerger

Great question! Let’s break down the LTCG calculation step-by-step based on the details you shared and the provisions of the Income Tax Act.

Given:

• Original holding: 10 shares of Company X bought for Rs 2,500 total (cost per share Rs 250).

• Demerger date: 1.1.2019.

• Asset split under Sec 49(2C):

  • 70% assets retained by residual Company X

  • 30% assets transferred to new Company Y

• Shares post-demerger:

  • 10 shares of residual Company X

  • 10 shares of Company Y (new company, listed soon after)

• Cost allocation:

  • Residual Company X: Rs 2,500 × 70% = Rs 1,750 total; per share cost = Rs 175 (1,750/10)

  • Company Y: Rs 2,500 × 30% = Rs 750 total; per share cost = Rs 75 (750/10)

• Sale of Company Y shares:

  • Sold 10 shares on 1.4.2020 at Rs 160 per share → Sale value = Rs 1,600.

Step 1: Determine period of holding for LTCG

• The original shares were held since 1985, so holding period is long-term for both original and transferred shares.

• Shares of Company Y received on 1.1.2019 will be considered long-term if held for more than 12 months.

• Shares sold on 1.4.2020 → held for more than 12 months → qualifies for LTCG.

Step 2: Calculate LTCG on sale of Company Y shares

• Sale consideration = Rs 1,600 (10 shares × Rs 160).

• Cost of acquisition = Rs 750 (10 shares × Rs 75).

So,

$LTCG=Sale\; Consideration-Cost\; of\; Acquisition=1,600-750=Rs850.$

Step 3: Applicability of indexation

• Under Section 112A, LTCG on listed shares exceeding Rs 1 lakh is taxable at 10% without indexation.

• Indexation benefit is not available for such LTCG after FY 2017-18.

• So, LTCG taxable amount = Rs 850 (no indexation).

Final Summary:

Important notes:

• This assumes shares of Company Y are listed and sale is through recognized stock exchange.

• LTCG exemption of Rs 1 lakh applies per individual, so only LTCG exceeding Rs 1 lakh is taxable.

• If aggregate LTCG is less than Rs 1 lakh, no tax liability arises.