Investors in firms undergoing M&As may stare at higher LTCG tax outgo

The grandfathering clause will not be applicable even if a listed company merges with an unlisted one

Investors in companies undergoing mergers, demergers or consolidation may be staring at a higher tax outgo as they may not be able to take advantage of the grandfathering benefit in the long-term capital gains (LTCG) tax.

Cost step-up, or grandfathering, applies to listed shares held on January 31, 2018. The tax computation compares the original cost, along with the stock value on January 31, and grants benefit of the higher of the two. 

Until now, Section 49 of the Income Tax Act allowed carry-over of the cost of original shares for the new asset that emerged as a result of