I am writing to seek guidance on a capital gains tax matter arising from a share amalgamation, the details of which are set out below.Facts of the case:I had purchased shares of Bharat Finance in two tranches:• 1,000 shares on December 13, 2013, at a total cost of ₹1,71,761.40• 500 shares on December 20, 2016, at a total cost of ₹1,10,015.97Subsequently, pursuant to an amalgamation, the above shares were converted into 958 shares of IndusInd Bank at a conversion ratio of 639 shares of IndusInd Bank per 1,000 shares of Bharat Finance, effective July 4, 2019.On May 12, 2025, I sold the entire holding of 958 shares of IndusInd Bank for a total sale consideration of ₹7,56,272.16.Queries:1. How should the cost of acquisition and the holding period be determined for the IndusInd Bank shares received pursuant to the amalgamation?2. What is the nature of the capital gain — short-term or long-term — given that the original shares of Bharat Finance were purchased in 2013 and 2016 respectively?3. Whether the grandfathering provisions under Section 112A of the Income Tax Act, 1961 Fair Market Value as on January 31, 2018) would be applicable, and if so, how should the FMV be computed for shares received in an amalgamation?4. Whether the amalgamation qualifies as a tax-neutral transfer under Section 47(vii) of the Income Tax Act, 1961, and what conditions must be satisfied for the same?5. What would be the final tax liability, if any, on the said transaction, and how should it be reported in the income tax return?Nikhil KumarCost of acquisition and period of holding of IndusInd Bank shares: Under the provisions of the Income Tax Act the pertinent sections are Section 47(vii), read with section Section 49(2) to be read along with Explanation 1(i)(c) to Section 2(42A) of the Income Tax Act, 1961 provides the basis for arriving at the cost of acquisition in such cases -Under the approved swap ratio of 639 shares of IndusInd Bank for every 1,000 shares of Bharat Financial Inclusion or BFIL (formerly Bharat Finance), the allocation would be:Nature of capital gain: For determining whether the gain is short-term or long-term, the holding period of BFIL shares is included and since the original shares were acquired on December 13, 2013, and December 20, 2016, respectively, both holdings exceed 12 months.Accordingly, the gain arising on sale of all 958 shares on May 12, 2025, is Long-Term Capital Gain (LTCG).Applicability of grandfathering under Section 112A: The grandfathering provisions introduced by the Finance Act, 2018 apply because:• The original shares of Bharat Finance were acquired before January 31, 2018.• The shares sold are equity shares on which Securities Transaction Tax (STT) requirements are satisfied.The CBDT has clarified that, in cases of amalgamation, the Fair Market Value (FMV) as on January 31, 2018, of the original shares of the amalgamating company shall be considered for grandfathering purposes.Therefore, for each lot, the deemed cost under Section 55(2)(ac) will be:Higher of:• Actual cost of acquisition, and• Lower of:o FMV as on January 31, 2018, of BFIL shares, ando Sale consideration attributable to such shares.Whether the amalgamation is tax neutral under Section 47(vii): The exchange of BFIL shares for IndusInd Bank shares qualifies as a transfer not regarded as transfer under Section 47(vii), provided:1. There is a valid scheme of amalgamation;2. The shareholder receives only shares of the amalgamated company in consideration (except permitted fractional cash adjustments);3. The amalgamated company is an Indian company;In the present case:• Bharat Financial Inclusion amalgamated with IndusInd Bank;• IndusInd Bank is an Indian company;• Consideration was received in the form of shares (assumed in the absence of information provided);Hence, the exchange of shares pursuant to the amalgamation is tax-neutral and no capital gains will arise on this transaction.The author is a practising Chartered Accountant and a Partner at Venkatesh and Co.Published on July 11, 2026