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I purchased 2,300 shares of Allahabad Bank for a price of 195 each in 2013. Following the merger of this bank with Indian Bank, I was issued 115 shares of Indian Bank in April 2020. I sold these shares in March this year for a price of 135 each. How do I compute capital gains in this case? Can I take the cost of acquisition of Allahabad Bank as the cost of original shares? If yes, what is my long-term capital gains total for the assessment year 2021-22? Alternatively, should I adopt the fair market value (FMV) on 31 January 2018, as grandfathered price, as cost of acquisition?

—Viswanathan K.

As the equity shares (listed on a recognized stock exchange in India) were held by you for more than 12 months from date of allotment, the gains arising out of the sale would be taxable as long-term capital gains (LTCG) in your hands.

For the purpose of computation of LTCG, the actual cost can be replaced by FMV of the shares as on 31 January 2018 (where actual cost of purchase is lower than such FMV), provided the FMV as on 31 January 2018 is lesser than the sale value. However, there is no specific clarification with respect to which FMV should be considered in the case of a share that was held by a taxpayer subsequent to a merger (i.e. FMV of the amalgamating company i.e. Allahabad Bank, or of the amalgamated company i.e. Indian Bank in the instant case).

Based on a harmonious interpretation of the provisions and the intention of the law, one may consider adopting a view that the FMV of the shares in the amalgamating company i.e. Allahabad Bank as on 31 January 2018 is to be considered for the purpose of determining the cost of acquisition.

However, in the absence of express clarity on the same, the position is not free from doubt.

Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India.

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