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Tag: merger

  • Income tax: Taxation of shares and fractional shares acquired on the merger

    In the merger of HDFC and HDFC Bank, I’m entitled to some fractional shares of HDFC Bank Limited. When and the way the transaction will get taxed? How do I report fractional entitlement in Schedule 112A of ITR which doesn’t settle for fractional portions of shares?

    As per the provisions of Section 47 of the Income Tax Act, allotment of shares on the merger of two firms just isn’t handled as a switch and due to this fact there are not any tax implications in respect of shares of HDFC Bank Ltd. allotted to you in respect of shares held by you in HDFC Ltd. As and when the shares allotted on the merger are offered, the mixed holding interval of HDFC Limited and HDFC Bank Ltd. Is to be thought-about for figuring out whether or not the income are short-term capital features or long-term capital features. The price incurred to accumulate HDFC Ltd. shares is to be taken under consideration for figuring out the price of HDFC Bank shares allotted and the price of the shares of HDFC Bank Limited offered is to be computed accordingly. If the shares have been acquired previous to 1st February, 2018 the closing worth of the HDFC Ltd. shares on thirty first January 2018 might be taken as the price of the shares of HDFC Limited offered STT is paid each on buy and sale. The long-term capital features on listed shares and fairness mutual funds are taxed 10% past the preliminary one lakh with out indexation. The short-term capital features are taxed at a flat charge of 15%.

    As far as cash acquired in respect of fractional entitlement of shares is worried, for the reason that fractional shares will not be offered by you and as such STT just isn’t paid in respect of such fractional shares, the identical can’t be taxed underneath Section 112A which is relevant if STT has been paid. 

    In my opinion, the long-term capital features on such fractional shares can be taxed at 20% after making use of the indexation on the proportionate price of fractional shares in respect of cash acquired by you. Please word you’ll have to take the precise price of buy and apply indexation to it. The grandfathering advantage of taking the closing worth on thirty first January 2018 in case the shares have been acquired previous to 1st February 2018 in such case just isn’t accessible for my part.

    If the shares of HDFC Limited have been held for lower than 12 months, the sale of revenue on fractional shares of HDFC Bank Limited can be handled as short-term capital features and taxed on the slab charge relevant to you.

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    Updated: 09 Aug 2023, 07:37 AM IST

  • HDFC merger: tax implications for shareholders

    The document date for the merger of HDFC Ltd with HDFC Bank was 13 July. The document date is the deadline set by an organization to find out the eligibility of shareholders to obtain dividends and distributions. As per the share trade ratio of the merger, for each 25 shares of HDFC, 42 shares of HDFC Bank have been issued to the previous’s shareholders. If we break this all the way down to per share stage, one can say that the ratio is 1.68 shares of HDFC Bank for each 1 share of HDFC.

    Shares are thought of capital property underneath earnings tax (IT) regulation, and any achieve on their sale is handled as capital features. However, within the case of a merger, the IT regulation doesn’t take into account the swap of shares as a switch, making certain that it’s tax-neutral for shareholders. To qualify for this tax-neutral profit, the merger should meet sure standards. First, all property and liabilities of the amalgamating firm have to be transferred to the amalgamated firm. Second, a minimal of 75% of shareholders (in worth) of the amalgamating firm should change into shareholders of the amalgamated firm. The case of HDFC Bank qualifies for each of those situations.

    Capital features on sale of shares is calculated on the idea of the holding interval and the date of acquisition of shares. If somebody receives shares as a part of a merger, the holding interval is counted from the date of buy of the amalgamating firm’s shares (HDFC Ltd on this case).

    Let’s perceive this with an instance. Suppose you got 30 shares of HDFC Ltd on 1 April 2019 at ₹2,000 per share, thus spending ₹60,000. As per the share trade ratio upon merger, you’re entitled to obtain 50.4 (42/25*30) shares of HDFC Bank. But since there isn’t any idea of fractional shares in India, you may be issued 50 shares of HDFC Bank. Further, as per the Bank’s BSE announcement of 14 July, the share allotment train has been finished and the itemizing of those shares is underneath course of.

    Now, let’s assume these 50 shares of HDFC Bank are listed on the exchanges on 17 July at ₹1,700 per share. Further, assume you promote these 50 shares on 1 August for ₹1,800 per share which makes the entire gross sales consideration to be ₹90,000. This sale transaction can be topic to capital features tax.

    In the case of listed firms, fairness shares held for greater than 12 months are categorised as long-term capital property, whereas these held for a shorter interval are categorised as short-term capital property. In the above instance, the holding interval is from 1 April 2019 to 1 August, making the features long-term capital features.

    The value of buy of shares of HDFC Ltd can be taken to be the price of buy of shares of the HDFC Bank (amalgamated firm). In this instance, the price of buy of fifty shares of HDFC Bank obtained on merger shall be ₹59,524 ( ₹60,000/50.4*50). This adjustment to the price of buy is completed as in opposition to the unique value of HDFC Ltd share entitlement of fifty.4 shares. Accordingly, there can be a long-term capital achieve of ₹30,476 ( ₹90,000- ₹59,524). One essential factor to notice right here is that the good thing about grandfathering may also be obtainable in circumstances the place shares of the amalgamating firm have been bought on or earlier than 31 January 2018.

    As for the 0.4 fractional entitlement, because it is not going to be given as a share, the shareholder can be paid consideration in money or type. This can be taxed as capital features because the shareholder has not obtained shares in lieu of shares and so, not like the swap of shares on a merger, no tax profit is given right here. In our instance, your fractional entitlement was 0.4 shares. Let’s assume that on the day you’re paid for the fractional entitlement, the worth of 1 share of HDFC Bank was ₹1,820. The capital achieve on the fractional entitlement would be the worth of 0.4 shares, i.e. ₹728 ( ₹1,820*0.4) as diminished by the price of buy, i.e. ₹476 ( ₹60,000/50.4*0.4) which comes out to be ₹252. Rules of the holding interval to categorise it as long-term or short-term will apply as talked about above.

    Sambhav Daga is companion at Sunil Johri & Associates

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    Updated: 16 Jul 2023, 10:26 PM IST

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  • Why ‘special situation’ funds don’t have anything particular for his or her traders

    Benjamin Graham, often known as the daddy of worth investing and the creator of Security Analysis, categorised company occasions together with mergers, the sale and liquidation of a enterprise unit, litigated issues in opposition to the corporate, and demergers as particular conditions. These particular conditions provide good shopping for alternatives to traders.

    Neil Bahal, founder & CEO of Negen Capital, mentioned in an interview to Mint in October 2022 that particular conditions investing is a complicated type of worth investing. He cites the instance of US-based Berkshire Hathaway, which was a failing textile enterprise earlier than Warren Buffett took over the corporate. “Buffett’s takeover of the enterprise, at $14 per share, modified the DNA of the corporate. It acquired into candies, furnishings, and even insurance coverage. The enterprise modified course fully and that is what you referred to as a particular state of affairs the place some occasion occurs and modifications the DNA of the enterprise,” added Bahal.

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    Special state of affairs funds sometimes spend money on corporations with company occasions together with M&A, delisting and buyback

    Yet, particular conditions investing can also be a really high-risk funding technique and has severe implications if the investor’s name goes fallacious.

    There are three funds in India that observe a particular state of affairs theme with general property beneath administration (AUM) of virtually ₹9,400 crore—ICICI Pru India Opportunities Fund, Axis Special Situations Fund and Aditya Birla Sun Life Special Opportunities Fund . These funds, nonetheless, observe a broader mandate to choose shares not simply primarily based on company actions but in addition alternatives supplied by sector and economy-related developments. Thus, these schemes, which have invested in about 44 to 72 shares, have a diversified portfolio in contrast to a typical particular state of affairs fund, which often holds a concentrated portfolio.

    An attention-grabbing commentary is that the portfolio of every of those three funds is kind of just like an current fund provided by the identical asset administration firm (AMC).

    ICICI Pru India Opportunities Fund

    Launched in January 2019, this fund is the oldest of the lot with a mandate to spend money on three sorts of particular conditions —short-term crises in an organization, sector or economic system; regulatory modifications; world occasions—providing good shopping for alternatives.

    In the three-year interval, the fund has delivered a great 26% CAGR (compounded annual development charge), aided by worth investing model that’s favoured by the market at the moment.

    A better have a look at the portfolio, nonetheless, reveals that this fund resembles the AMC’s Value Discovery Fund, run by the identical fund supervisor— Sankaran Naren. Both the funds have in widespread about 32 shares, which account for 82% of the India Opportunities fund portfolio, as of November 2022.

    Bharat Pareek, product head- non-public wealth administration, ICICI Securities, mentioned, “each worth discovery and India alternatives funds have made related modifications to their portfolios during the last one yr. The latter was really useful to shoppers as worth choose and never as a particular state of affairs fund.”

    ABSL Special Opportunities Fund

    Aditya Birla Sun Life Mutual Fund merged its erstwhile Special Situations Fund, a diversified equity scheme into Aditya Birla Sun Life Equity Fund in April 2018 in accordance with a directive by market regulator Sebi on the categorization of mutual fund schemes. On 23 October 2020, the fund house launched the ABSL Special Opportunities Fund.

    Just like ICICI’s fund, this scheme too scouts for opportunities not limited to company-specific events.

    Mahesh Patil, chief investment officer of the fund house, explained how they find opportunities for this fund from sector changes such as growth in the chemical sector, which is aided by ‘China Plus One’ strategy. He also explained the strategy of finding value in a company-specific event, citing the example of an investment by the fund in a electrical company which demerged one of itsbusinessunits recently. He declined to name the firm, citing the fund’s policy. The fund is titled towards the large-cap segment and has 38 stocks in common with the Aditya Birla Flexi Cap Fund, which has also significantly invested in blue-chip companies. The 38 stocks constitute 76% of the portfolio of the Special Opportunities Fund.

    Axis Special Situations Fund

    Axis Mutual Fund, known for its growth style of investing, introduced the Special Situations fund with focus on companies that disrupt business models and also others in such an ecosystem.

    “We are trying to find out companies which are probably the highest growth in their own sectors. Also, a lot of times, the valuation of these funds may not be on the lower side,” mentioned Ashish Naik, fund supervisor. The portfolio of this fund, with holdings reminiscent of Zomato and InfoEdge, displays the identical.

    Axis Special Situations Fund is the one scheme on this class with worldwide publicity (about 27%, as of November 2022), which is suggested by UK-based Schroder Investment Management which additionally focuses on the disruption philosophy.

    This fund, nonetheless, is similare to the Axis Growth Opportunities Fund, within the massive & mid-cap class. This fund additionally does abroad investments with recommendation from Schroder. Out of the 73 shares held by Axis Special Situations Fund, there are 35 shares (61% of the portfolio) in widespread with the Growth Opportunities fund.

    Are these related now?

    Santosh Joseph, who’s a AMFI registered mutual fund distributor, sees no relevance for particular state of affairs funds at the moment. “Most diversified funds with a multi cap Flexi cap or massive cap will seize bulk of that of their current portfolio,” he added.

    Koushik Mohan, who used to manage the special situations fund at MOAT PMS until a few months ago, strongly believes that mutual funds can deploy the current investing style in any of their diversified fund such as a value or a contra fund.

    “The portfolios of all three special situation funds are a bit inclined towards large-caps. I believe that true value in special situation funds will be created from the mid- and small-cap space,” mentioned Rushabh Desai, a Mumbai-based mutual fund distributor.

    Desai, who can also be a founding father of Rupee with Rushabh Investment Services, mentioned “Investors can absolutely reside with out particular conditions class. Any fund supervisor of Flexi cap technique funds can take the identical benefit and churn the portfolios as per the dynamic nature of the markets.”

    Investors ought to be aware that there are a few particular state of affairs funds within the PMS (portfolio administration companies) area that observe the funding technique more true to their names (see desk).

    Vishal Dhawan, founder & CEO of Plan Ahead Wealth Advisors, highlighted that particular state of affairs funds within the PMS area might open up solely tactically when such alternatives exist to be taken benefit of. He gave the instance of Unifi PMS, which has a ‘Spin-Off’ fund that focuses on demergers, and mentioned this fund now not accepts capital because the alternatives beneath this class could also be restricted.

    Mohan, who’s now a lead analyst at Ashika institutional Equity, cautions traders to be affected person when invested in a very particular state of affairs fund as typically it may take a chronic time frame earlier than the shareholder witnesses the good thing about ‘value unlocking’ by such corporations.

    Should you spend money on these?

    There is nothing particular in regards to the particular state of affairs mutual funds in India. The good thing about investing in these schemes might be achieved by allocating your funds to any well-managed diversified mutual fund scheme in India.

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  • Voter ID card is digital, now you’ll be able to maintain it digitally with you

    The voter identification card has gone digital. Now you’ll be able to maintain it digitally secure by downloading EPIC (e-EPIC). If your cell quantity is registered with Epic within the voter checklist, then by some steps you’ll be able to obtain e-Epic. You should first go to https://nvsp.in. You should register your self by cell quantity or Epic and log in with the assistance of consumer ID and password. In case of pre-registration, you must log in instantly with the assistance of consumer ID and password. After logging in, the choice on the left facet of the web page needs to be clicked on Download e-EPIC. After clicking on Download e-EPIC, the web page will open, the place you’ll have to search the information by deciding on your epic quantity and state. Your knowledge will seem on the information search and the choice of ship otp will come when the cell quantity is pre-entered.