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Q1) What is the tax regime in case of (i) sale of shares and assets due to acquisition; and (ii) sale of shares and assets due to merger?
(i) Sale of shares
Depending upon the time period for which the shares were held before being transferred, the seller will be liable to pay Capital Gains tax. Shares of an unlisted company held for more than 24 months (12 months in case of shares of a listed company) are considered as Long term capital assets and attract long term capital gains tax. Shares held for 24 months or less (12 months or less in case of shares of a listed company) are considered as Short term capital assets and attract Short term capital gain tax. If the seller is a non-resident, Long term capital gain tax at the rate ranging from 10.4% to 10.92% and Short term capital gain tax at the rate ranging from 41.6% to of 43.68% shall be charged.
Transfer of shares also attracts Stamp Duty on the execution of share transfer instrument. The applicable rate of stamp duty on such instrument is 0.25% of the amount of consideration or fair value of the shares, whichever is higher. This rate is uniform all over the country. No share transfer duty shall be payable in case shares are held in dematerialised form.
(ii) Sale of Assets
Depending upon the time period for which the assets (other than shares) were held before being transferred the seller will be liable to pay Capital Gains tax. If asset is held for more than 36 months it is considered as Long term capital asset and attracts long term capital gains tax. Asset held for 36 months or less is considered as Short term capital asset and attracts Short term capital gain tax. If the seller is a non-resident Long term capital gain tax at the rate ranging from 20.8% to 21.84% and Short term capital gains tax at the rate ranging from 41.6% to of 43.68% shall be applicable.
Transfer of assets further entails the payment of Stamp Duty on the execution of any conveyance deed. The applicable rate of stamp duty on such deed will differ in each State depending upon where the transferred assets are located.
There is no capital gains tax on amalgamation if it complies with the specific conditions as provided in Income Tax Act, 1961. In case these conditions are not met, capital gains tax will be levied.
The scheme of amalgamation/merger is approved by the National Company Law Trinbunal (“NCLT”). The NCLT order approving such scheme may or may not be chargeable to stamp duty depending upon the State in which the NCLT giving such order is situated.
(iii) Issue of Shares
No income tax is payable on the issue of shares. However, the certificate evidencing the title of shares (share certificate) is liable for Stamp Duty at such rate as is applicable in the State in which the company issuing shares is located.