Tax implication on shareholders due to ICICI Securities Limited delisting
Tax implication on shareholders due to ICICI Securities Limited delisting
We refer to the scheme of arrangement between the ICICI Securities Limited (‘ICICI Securities’ or “the company”) and ICICI Bank Limited (‘ICICI Bank’) with respect to delisting of equity shares of the company and Notice[1] sent to public shareholders of meeting held on 27 March 2024 wherein the tax implications were covered in detail.
As per the scheme of arrangement, the equity shares of ICICI Securities are delisted and cancelled from the BSE and the National Stock Exchange (NSE) on 24 March, 2025 (i.e. Record Date). Upon delisting, the public shareholders of ICICI Securities received 67 equity shares of ICICI Bank for every 100 equity shares of ICICI Securities in accordance with the swap ratio as defined in the scheme.
This transaction has tax implications for shareholders and we have explained these tax implications in the form of FAQs.
Please Note: The tax implications mentioned below are neither exhaustive nor comprehensive and is not intended to be a substitute for professional advice. For further professional guidance and tax liability computation, shareholders may seek help of their tax advisor.
What is the tax implication of conversion of ICICI Securities to ICICI Bank Shares?
The cancellation of equity shares of ICICI Securities shall be considered as a ‘transfer’ as per section 2(47) of the Income Tax Act and, therefore, taxable in the hands of the shareholders of ICICI Securities Ltd as on the record date i.e. 24 March, 2025.
The gain/loss arising on such transfer of shares will be liable for taxations under section 45 of the Income Tax Act as Capital Gain/loss. Capital gain should be computed as per the provisions of Section 48 of the Income Tax Act and the rate of income-tax would depend on the period of holding of the shares.
How will the gain on transfer/cancellation of equity shares of ICICI Securities be computed?
The difference between
(a) the fair market value of the shares of ICICI Bank as on the record date received as sale consideration for cancellation of shares of ICICI Securities and
(b) the cost of acquisition of shares of the ICICI Securities should be treated as gain arising to the shareholders.
The characterization of income from transfer of securities as a ‘business income’ or ‘capital gains’ should be examined on a case-by-case basis. Please consult your tax advisor for personalized guidance.
What is the Fair Market Value (FMV) of ICICI Bank shares for tax purposes?
The FMV is the average market price of ICICI Bank shares as on the Record Date on NSE, which is ₹1,358.95 per share (as on March 24, 2025). This value may be used to calculate the sale consideration for the purpose of capital gain computation. Please consult your tax advisor for personalized guidance.
What is the Cost of Acquisition of ICICI Securities shares for tax purposes?
Original cost of purchases of ICICI Securities shares shall be considered as cost of acquisition for tax purposes.
What is the nature of capital gain and what will be the applicable tax rates?
Depending on the period for which the shares are held, the gains would be taxable as ‘short term capital gain’ or ‘long-term capital gain’. For listed securities, if it is held for more than 12 months, the gain would be considered as ‘long term’ and if held for less than 12 months gain would be considered as ‘short term’.
Since Securities Transaction Tax (“STT”) is not payable on the transaction pursuant to the Scheme, the provisions of section 112A of the IT Act should not apply. The long-term capital gain will be taxed at the rate of 12.5% plus applicable surcharge and cess and short-term capital gain will be taxed as per the applicable slab rates plus surcharge and cess. Please consult your tax advisor for personalized guidance.
Illustration –
Mr. X had purchases 100 equity shares of ICICI Securities on 1 Dec, 2023 for price of Rs. 500 per equity share and Mr. Y had purchased 100 equity shares of ICICI Securities on 24 April 2024 for price of Rs. 600 per equity share. Upon cancellation and delisting of equity shares of ICICI Securities on 24 March 2025, Mr. X and Mr. Y each received 67 shares of ICICI Bank. The Fair Market Value of ICICI Bank shares on 24 March 2025 was Rs. ₹1,358.95 per equity share.
Computation of Capital Gain –
*Surcharge and Education cess is not considered in above computation of capital gain.
**For short term gain computation purpose, 30% tax rate is assumed.
Disclaimer - The information provided above sets out the income-tax implications on cancellation of equity shares of the ICICI Securities Limited and issue of equity shares by the ICICI Bank Limited in a summary manner and is not a complete analysis or listing of all potential tax consequences under the income tax laws presently in force in India. The above overview is not exhaustive or comprehensive and is not intended to be a substitute for professional advice. The above information is provided is based our understanding of the Income Tax Law. The shareholders are requested to approach their tax advisors for personalized tax advice.