I dont have good understanding of taxes hence went through chatGPT to simplify it for me and used Ujjivan as a scenario.
In India, the tax implications of a reverse merger would depend on whether the transaction qualifies as a tax-neutral merger under the provisions of the Income Tax Act, 1961. If the merger qualifies as a tax-neutral merger, there would be no capital gains tax implications for the shareholders.
However, if the merger does not qualify as a tax-neutral merger, then the shareholders may be liable to pay capital gains tax on the difference between the cost of acquisition of the shares and the fair market value of the consideration received in the merger. The capital gains tax rate would depend on whether the shares held were long-term or short-term assets. If the shares were held for more than 12 months, they would be classified as long-term assets and the applicable tax rate would be 20% plus applicable surcharge and cess. If the shares were held for less than 12 months, they would be classified as short-term assets and the applicable tax rate would be 30% plus applicable surcharge and cess.
Yes, the merger of Ujjivan Small Finance Bank into its parent company Ujjivan Financial Services was structured as a tax-neutral amalgamation under Section 2(1B) of the Income Tax Act, 1961.
Accordingly, the transaction was exempt from capital gains tax for the shareholders of Ujjivan Small Finance Bank who received shares of Ujjivan Financial Services as consideration for the merger.
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