When stocks are received to demat account, via a corporate action like bonus, split, scheme of amalgamation, demerger and merger, what would be the acquisition date for taxation purpose?
Bonus: Since new stock is issued, ex-date of corporate action.
Stock Split/merger/demerger/Scheme of amalagamation: Holding period remains the same for whatever was held previously to corporate action.
Rights issue: The day stocks from rights issues is credited to your demat.
Rights renunciation: When you sell the rights issue to another person for a premium. This is always considered as short term capital gain. So holding period doesn’t matter.
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Hi Nithin,
In case of Reverse Splits, Mergers & Amalgamation, what would be the date of acquisition in case I’ve made purchases over a period of time i.e the first purchase was 4 years back, then subsequent purchases a couple of months[or a year] prior to the corporate action.
Which purchase date would be considered as date of acquisition for taxation purposes ?
If I receive shares of a new company after a demerger, what price should I enter as buy price in discrepant holdings?
Which company is this?
Let me explain with an example, 1 Stock A was bought 2 years back at 100, 1 Stock B was 3 months back at 50. Stock A and B merged to become Stock C say whose value today is 200. If you were to sell it now, is it long term gain (since A was held for more than 1 year) or Short term (Since B is less than 1 year) is the question.
Debatable issue. But the way our P&L statements work is by taking the most conservative approach (where there is no tax evaded). So in the above, we will consider holding period for B as holding period for new stock C. Hence short term capital gain.
If you want to take an aggressive approach and declare it as long term capital gain, you can do it before filing the Income tax returns and editing the P&L statement.
Same logic for reverse split, mergers & amalgamations.
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During the demerger process, the company would have declared a % value to the new company being floated from the original. So you will have to take the original buy average price, and then apply this % as buy price.
So if you bought a stock A at Rs 100. It got demerged into Stock A and Stock B. Value of Stock B was say 30%. So your new buy average price is 70 for stock A and Rs 30 for Stock B.
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basic underlying rule will be DATE OF SUCH CORPORATE ACTION when beneficiary got a right to use these instruments…that will then decide the period of holding for either SHORT TERM or LONG TERM…