What Are the Tax Implications for Shareholders Due to the ICICI Securities and ICICI Bank Merger?

Shareholders of ICICI Securities who will receive ICICI Bank shares as part of the share-swap arrangement in the company’s delisting process could be liable to pay capital gains tax.

Tax consultants highlighted that while most mergers and acquisition deals do not attract taxes for investors, this specific case could result in tax liabilities, even if shareholders do not sell the ICICI Bank shares they receive.

Last Trading Day and Share Swap Details

ICICI Securities shares are set to trade on domestic exchanges for the last time on Friday. Under the scheme of arrangement, ICICI Bank will issue 67 shares for every 100 equity shares of ICICI Securities held by shareholders.

The record date to identify public shareholders whose ICICI Securities shares will be cancelled and who will receive ICICI Bank shares has been set for Monday, March 24.

How Capital Gains Tax Will Be Calculated

The capital gains tax will be determined based on the fair market value (FMV) of the ICICI Bank shares received in exchange for ICICI Securities shares. The FMV of ICICI Bank shares will be considered the sale price, and the difference between this FMV and the original purchase cost of ICICI Securities shares will be taxable as capital gains.

For instance, if an ICICI Securities shareholder receives 67 ICICI Bank shares and their purchase price is ₹713.80 per share, with ICICI Bank shares currently trading at ₹1,313, they will be subject to capital gains tax.

The taxable gain will be the difference between ₹713.80 and 67% (67/100) of ₹1,313. This would result in a tax payout of approximately ₹2,074 for 100 shares, excluding applicable surcharge and cess.

Stock Performance of ICICI Securities and ICICI Bank Shares

Over the past year, ICICI Securities shares have gained 23%, closing at ₹877 on Wednesday, while ICICI Bank shares have risen by 21%, ending at ₹1,313. The increase in share prices has added to the tax implications for investors undergoing the share swap.

Impact of Recent Tax Amendments

According to reports, the share swap would not be classified as a securities transaction tax (STT) transaction, meaning it would be treated as a non-STT transaction. The recent Budget reduced the long-term capital gains tax rate for non-STT transactions from 20% to 12.5%, easing the tax burden on investors.

However, short-term capital gains tax will still be applicable based on the investor’s income tax slab. Unlike STT-paid transactions, which benefit from concessional tax rates, short-term gains in this case will be taxed at standard rates.

Conclusion

The ICICI Securities share swap arrangement presents potential tax implications for investors, even if they retain the ICICI Bank shares they receive.

With the last trading day approaching and the record date set for March 24, shareholders must consider the capital gains tax impact and plan accordingly to manage their tax liabilities effectively.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.

Investments in the securities market are subject to market risks, read all the related documents carefully before investing.