A demerger is a corporate restructuring strategy where a company separates one or more of its businesses into separate entities. The latest entity created after the demerger of Reliance Industries Ltd (RIL) is Reliance Strategic Investments Ltd (RSIL), which will be rebranded as Jio Financial Services (JFS) in the future. According to the predetermined share ratio, existing RIL shareholders will receive one share of Jio Financial Services for each share they currently held in RIL till the record date of July 21, 2023.
After the demerger, the shareholders would hold shares of both RIL and JFS. It is expected that the demerged entity (JFS) will be listed within 2-3 months. But how will capital gains be calculated if you sell JFS shares in the future? How will the cost of acquisition be determined for the new demerged entity? How will the holding period be determined for JFS? Will it be calculated from the date of holding JFS or from buying date of RIL?
Vishwas Panjiar, Partner, Nangia Andersen LLP
The investors’ taxability, when they seek to monetise their shareholding, in either of the two entities would also be impacted and investors should bear the following in mind:
• The Investors would be benefitted, since the period of holding even for the new shares of JFS, shall be counted from the date of acquisition of the shares of RIL. A longer holding period would lead to resultant long-term gains being taxed at a lower rate.
• Further the price paid by the investors originally, towards the shares of RIL would need to be split between the shares of JFSL and shares of RIL:
• Cost of acquisition for the shares of JFS would need to be apportioned based on the proportion of the assets transferred to the JFS in the demerger process, vis-à-vis, net worth of the demerged company immediately before such demerger process was undertaken. The balance cost shall be allocated towards the original shares in the demerged company, RIL
