Tax treatment of amount received in lieu of fractional shares

Pl. advise about tax treatment of the amount received for the shares that cannot be issued in full (fractional shares) at the time of:1.Amalgamation(e.g. LTI & Mindtree);2. Issue of bonus shares (e.g. Varun Beverages); and.3.  Issue of split shares.If amount received in lieu of fractional shares  are taxable,Pl advise under which head of income the  amount would be taxed in each scenario and  how the said amount would be shown in ITR2 AY 23-24 

 

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Quick Summary
This discussion explores the tax treatment of amounts received in lieu of fractional shares during company amalgamations, bonus share issues, and share splits. It questions whether these payments are taxable and, if so, under which income head they fall. The content highlights that the Indian Income Tax Act is silent on this matter, and it's neither classified as dividend nor capital gains. One company's statement suggests it's treated as capital gains for tax purposes, while another remitted the amount without specifying its nature.

IT act is silent on fractional shares amount.It is not Dividend, it's not capital gains either.By the way what is the actual amount credited to your bank account linked with demat to be able to understand the issue in true perspective.

*As per amalgamated company - LTIMindtree Limited ".. In terms of the applicable tax provisions, distribution of sale proceeds of fractional entitlements shall be construed as "Income in the nature of capital gains" and accordingly applicable income tax shall be deducted at source ('TDS')

There is no TDS obligation in the case of resident shareholders.."

*In similar fashion,sale proceeds of fractional bonus share were remitted into bank account by bonus issuing company without specifying nature of income

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