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ShareReaders may be aware that Bajaj Auto Ltd (BAL) has been demerged. Consequently, shareholders of the erstwhile BAL will receive shares of the demerged new companies as per the provisions of the demerger.
This article discusses the demerger and its tax treatment, shorn of all jargon, income tax sections, laws and rules. Shareholders of BAL would naturally be interested to know if they have any tax liability following the demerger, and if so how much. But, even non-shareholders may find the discussion useful, as the principles behind any demerger remain the same.
The demerger
The term 'demerger' simply means one company transferring one or more of its business operations into another company(s). The company that transfers such business operation is known as the "demerged" company, while the company to which the business is transferred is known as the "resulting" company.
Note these nomenclatures carefully since these will be used throughout the article. Once again, BAL is the demerged company and the new companies whose shares you will receive are the resulting companies.
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