HDFC merger: What you need to know about the tax implications

Date : 17/07/2023
Read: 3 mins

HDFC merger: What you need to know about the tax implications. This article provides a summary of the key tax issues you need to be aware of.

How the HDFC Merger Impacts Shareholders Taxes

In the world of finance, mergers and acquisitions often bring forth a wave of excitement and uncertainty. The recent HDFC merger has certainly created ripples within the investment community, leaving shareholders eager to understand the implications for their taxes. According to ratio by share exchange, 42 shares of HDFC Bank were issued for every 25 shares of HDFC to the later’s shareholders. This article, delves into the intricacies of this merger, unveiling the crucial tax implications that shareholders need to be aware of.

42 HDFC Bank shares for every 25 HDFC shares.
Tax implications for shareholders.
Record date for the merger was July 13th.
HDFC Bank merger qualifies for tax-neutrality.

What was the record date for this merger?

The record date is the date on which a company determines who is eligible to receive dividends and distributions. HDFC Bank and HDFC Ltd merged on July 13th, which was the record date for the merger.

What are the tax implications on shares under the income tax laws?

Selling shares can lead to capital gains as they are considered capital assets for tax purposes.

Shares are tax-neutral in a merger if the amalgamating company's assets and liabilities are transferred to the amalgamated company and 75% of shareholders (in value) of the amalgamating company become shareholders of the amalgamated company. HDFC Bank merger qualifies for this.

Also Read: What does the HDFC-HDFC Bank merger mean for shareholders?

Process of capital gains calculation mentioned below:

Capital gains on the sale of shares received as part of a merger are calculated on the basis of the holding period of the amalgamating company's shares. In the case of the HDFC Bank merger, the holding period will be counted from the date of purchase of HDFC Ltd shares.
If you bought 50 shares of HDFC Ltd on 1 April 2019 at INR 2,000 per share, you would have spent INR 100000. Upon merger, as indicated by the ratio of the share exchange, you would be entitled to receive 84 shares of HDFC Bank. If you sold these shares on 1 August for INR 1,800 per share, the total sales consideration would be INR 151,200 and this sale transaction would be subject to capital gains tax.
Shares held for more than 12 months are classified as long-term capital assets. In the above example, the gains are long-term capital gains, as the holding period is from 1 April 2019 to 1 August.
Here, the cost of purchase of purchasing 84 shares of HDFC Bank received on merger shall be INR 100000. Accordingly, there would be a long-term capital gain of INR 51200 (151200 - 100000)

Also Read: HDFC-HDFC Bank Merger: Say Hello to World’s 4th Most Valued Bank

The HDFC merger has tax-neutral implications for shareholders and the record date for the merger was July 13th. The holding period for shares received as part of the merger will be counted from the date of purchase of HDFC Ltd shares. Shares held for more than 12 months are classified as long-term capital assets.