Everything you need to know about demerger of Reliance Industries Limited

[ShubhS9]

@Shivam_Gupta

It is said that JFSL will be listed only for 3 days and then delist.
What does that mean?
What will be the impact on our JFSL shares ( received after demerger or bought on/after listing)?

Once listed, it will not delist. Currently Jio Financial Services is part of all the indices that Reliance is part of, for example Nifty 50 at constant price (as it is not traded). Once it lists on he exchanges, it will be removed from those indices after 3 days. Please check out this post for more information:

Will Nifty 50 index have 51 companies?

Earlier, NSE used event-based index reconstitution for mergers/demergers, where once shareholders approval is received, it is considered as a trigger to initiate replacement of such stocks in the index and exclusion of stocks going through merger/demerger is done much ahead of ex-date. This rule changed from April 30, 2023 and the exchange decided to use a Special pre-open session (SPOS) to determine index reconstruction. You can check the below mentioned post to read the summary of that circu…

[Nalak]

What is the expected date when JFSL share will be credited in RIL shareholders demat acc?

[ShubhS9]

@Nalak

What is the expected date when JFSL share will be credited in RIL shareholders demat acc?

Exact date is not available. It generally takes 30-45 days from the record date (July 20, 2023).

[Vrs002002]

I bought RIL on 19th july and taken delivery.
Will i get Jio financial shares?

[ShubhS9]

@Vrs002002

I bought RIL on 19th july and taken delivery.
Will i get Jio financial shares?

Yes, you will be eligible to get shares of Jio Financial Services.

[Russell]

@ShubhS9, thanks for an excellent “article”.

Would you be kind enhance it to add a section on how the 31-Jan-2018 FMV value used for long term capital gains calcuation for those selling RELIANCE shares which were bought RELIANCE before that date will be changed? Sites like Fair Market Value of stocks on 31 Jan 2018 for LTCG still show the “old” (pre-demerger) value of ₹964.90. I assume that the same factor of 95.32% will be applied to the 31-Jan-2018 FMV value to produce ₹919.74 (95.32% of ₹964.90)? It would be most reassuring to me and others in a similar “grandfathering” situation to see it in your first post.

Thank you.

Russell

[ShubhS9]

@Russell

Would you be kind enhance it to add a section on how the 31-Jan-2018 FMV value used for long term capital gains calcuation for those selling RELIANCE shares which were bought RELIANCE before that date will be changed? Sites like Fair Market Value of stocks on 31 Jan 2018 for LTCG still show the “old” (pre-demerger) value of ₹964.90. I assume that the same factor of 95.32% will be applied to the 31-Jan-2018 FMV value to produce ₹919.74 (95.32% of ₹964.90)? It would be most reassuring to me and others in a similar “grandfathering” situation to see it in your first post.

Tagging @Quicko so they can assist you on this.

[Russell]

@ShubhS9

Tagging @Quicko so they can assist you on this.

@ShubhS9, I don’t believe this is a @Quicko issue just as the updating of the average price that you’ve described is not a @Quicko issue. Or, to put it another way the tax laws have not changed. LTCG is still calculated the same way as before. Only the values used in the calculation (e.g., the average price or 2018 FMV) have changed based on the Cost of Acquisition. Please keep in mind that when one sells shares one can get a Tax P & L report in Console. That report has to use the 31-Jan-2018 FMV in the grandfathered case. Perhaps you can ask that department what they are doing for grandfathered RELIANCE sales after the demerger, please?

[Abhinav_Gupta]

Read news yesterday that JFSL shares has been credited to demat accounts.

Had everyone received those shares, where is it visible if yes?

[ShubhS9]

@Abhinav_Gupta

Read news yesterday that JFSL shares has been credited to demat accounts.

Had everyone received those shares, where is it visible if yes?

The shares of Jio Financial Services are yet to be listed on the exchanges, until the shares are listed, these won’t show in your holdings on Kite. However, you can check in Console holdings under ISIN: INE758E01017

[Chirag1]

From accounting perspective, what would be the price of acquisition?

[TheGouda]

@ShubhS9

Update: As per the announcement by the company, Based on the closing price of 19th July, 2023, Cost of acquisition for both the companies will be as follows:

• Reliance Industries Ltd - 95.32% of 2841.85 = 2708.85
• Reliance Strategic Investments Ltd (Jio Financial Services) - 4.68% of 2841.85 = 133

@Chirag1 4.68% of your investment in RIL will be assigned to Jio Financial Services, with the same date of acquisition as RIL.

[BornArcher8]

Will it be automatically done or should we do it? Because right now on console it shows discrepancy and says we should manually add buy data.

[TheGouda]

We have provisions to handle all corporate actions for buy price and PnL calculations. Since it is not listed, we don’t have all the info required to update it. We’ll show the buy price for all our clients once it is listed on the stock exchanges.

[Soulofamonk]

I got the email from CDSL that shares have been credited to my Demat account, but I don’t see any Jio shares in my A/C.

[ShubhS9]

@Soulofamonk

I got the email from CDSL that shares have been credited to my Demat account, but I don’t see any Jio shares in my A/C.

The shares of Jio Financial Services are yet to be listed on the exchanges, until the shares are listed, these won’t show in your holdings on Kite. However, you can check in Console holdings under ISIN: INE758E01017

[Nalak]

Does anybody have any idea about possible listing date of JFS?

[ShubhS9]

@Nalak

Does anybody have any idea about possible listing date of JFS?

The listing date hasn’t been announced yet.

[TheGouda]

@Russell

Would you be kind enhance it to add a section on how the 31-Jan-2018 FMV value used for long term capital gains calcuation for those selling RELIANCE shares which were bought RELIANCE before that date will be changed? Sites like Fair Market Value of stocks on 31 Jan 2018 for LTCG still show the “old” (pre-demerger) value of ₹964.90. I assume that the same factor of 95.32% will be applied to the 31-Jan-2018 FMV value to produce ₹919.74 (95.32% of ₹964.90)? It would be most reassuring to me and others in a similar “grandfathering” situation to see it in your first post.

There’s no specific rule on adjusting FMV in cases of corporate actions. If a stock was brought before 31 Jan 2018 and the demerger happened recently, there’s room for more questions if we adjust FMV to the parent company. Whether or not to adjust the remaining 4.62% to the child company. If the answer is yes, how? Since it was not listed in 2018, is it appropriate to show it as FMV etc?.
To conclude, we have more questions than answers, so we’re checking with our auditors and advisors on handling this. Once we have clarity, we’ll check and make changes if required.

@Russell

when one sells shares one can get a Tax P & L report in Console. That report has to use the 31-Jan-2018 FMV in the grandfathered case. Perhaps you can ask that department what they are doing for grandfathered RELIANCE sales after the demerger, please?

We’re currently not adjusting the FMV (closing price of 31 Jan 2018) in the Console Tax PnL.

[Russell]

Thanks for your thoughtful response @TheGouda. I’m glad to hear that Zerodha is “checking with our auditors and advisors on handling this”. Please bear with me, Mr ArunGouda, as you read my follow-up!

Let’s say I buy 1 share of company X in 2016 for ₹2. 2018 FMV is ₹4. Today’s price is ₹8. I sell the share. Using grandfathering, the LTCG is ₹4.

Instead let’s say, one month ago, the company split shares 2 for 1. So now I have 2 shares. Acquisition cost goes from ₹2 to ₹1. Let’s assume market conditions have not changed for the company and so today’s stock price is ₹4 per split share (still ₹8 for both my shares). I sell them at ₹4 per share. If FMV is not correspondingly decreased, using grandfathering, the LTCG per share is 0!

As you can see, the above is “unfair” to the tax authorities. It’s also easy to come up with a different scenario which is “unfair” to the me (the stock owner). The only tax neutral approach would be to halve the FMV in the 2-for-1 (or any split) case.

Hasn’t CBDT issued guidance for corporate actions like the above, to be used when IT Returns are filed?

The demerger case is more interesting, as you point out by asking “Whether or not to adjust the remaining 4.62% to the child company. If the answer is yes, how? Since it was not listed in 2018, is it appropriate to show it as FMV etc?.”.

I thought the child company shares would get the same date of acquistion as the original shares with a cost of acquisition equal to 4.62 of the original cost? Assuming that’s going to be done, would it be appropriate to create a “virtual” entry in the FMV table for the child company for the remaining 4.62% of the FMV? Which answers your (possibly rehetorical) question about what to do the “remaining 4.62%” of the FMV - that way the stock-owner does not lose out!

Of course, going forward two companies may have very different trajectories and so this may end up being “unfair” to one of the two parties! One could argue, it may make sense to not change the FMV for Reliance (given that the ratio of the split is 95.38 to 4.62 and the very substantial increase in the price of Reliance from the FMV date) and let the customer claim the full FMV value on the Reliance side.

Russell