Tax Implications for Shareholders in HDFC–HDFC Bank Merger

HDFC BANK – HDFC Ltd merger

With the merger of HDFC Ltd and HDFC Bank completed and shares already credited to investors' demat accounts, it's important to understand the tax implications for shareholders in HDFC Bank merger. 

HDFC Ltd shareholders received HDFC Bank shares at a swap ratio of 42:25 on the record date, July 13, 2023. While no immediate tax on HDFC merger shares applies during the swap, capital gains tax may be applicable when the swapped HDFC Bank shares are sold later.

You may also want to read about HDFC NEFT, IMPS, and RTGS Charges

Table of Contents

1. HDFC BANK – HDFC Ltd merger
2. Will shareholders pay tax on HDFC Ltd shares swapped?
3. How will sale of swapped shares of HDFC Ltd be taxed?
4. How will capital gains calculation work in practice?

Will shareholders pay tax on HDFC Ltd shares swapped?

For tax purposes, shares of HDFC Ltd and HDFC Bank are treated as capital assets. According to income tax treatment for HDFC Bank shareholders, gains from these shares are taxed only upon sale—STCG if held up to 12 months, and LTCG if held longer. As per tax implications for shareholders in HDFC Bank merger, no tax on HDFC merger shares applies at the time of swap, since share allotment under an NCLT-approved scheme is not considered a taxable event.

Under the Income Tax Act, the share swap in the HDFC Bank merger is tax neutral and not considered a transfer, given certain conditions. The tax implications for shareholders in HDFC Bank merger state that since all assets and liabilities were transferred and over 75% of shareholders became part of the merged entity, no tax on HDFC merger shares arises at the time of the swap.

How will sale of swapped shares of HDFC Ltd be taxed?

For tax implications for shareholders in HDFC Bank merger, when you sell the swapped HDFC Bank shares, the capital gains are calculated based on the original purchase price and date of your HDFC Ltd shares. The swap date is not considered. The cost of acquisition is adjusted according to the swap ratio to match HDFC Bank’s share price. This income tax treatment for HDFC Bank shareholders ensures that the tax on HDFC merger shares is based on your original investment in HDFC Ltd.

How will capital gains calculation work in practice?

To understand the tax implications for shareholders in HDFC Bank merger, consider this example: If you bought 60 shares of HDFC Ltd on April 1, 2020, at ₹1,800 each (total ₹1,08,000), you would receive 100 shares of HDFC Bank after the swap ratio of 42:25 on July 13, 2023. The effective purchase date remains April 1, 2020, and the adjusted cost price for 100 shares is ₹1,07,142.86 (₹1,071.43 per share).

If you sell these HDFC Bank shares at ₹1,680 each, your capital gains per share would be ₹608.57, totaling ₹60,857. Since the holding period qualifies as long term, LTCG tax at 10% applies only on gains exceeding ₹1 lakh. The cash received for fractional shares is taxed as income.

Regarding the income tax treatment for HDFC Bank shareholders, if shares were bought before January 31, 2018, grandfathering applies, taxing only gains after that date. Overall, tax on HDFC merger shares arises only when the swapped shares are sold, not at the time of swap.