Jio Financial Services demerger: How you will be taxed

Reliance Industries has jolted the market once again. On July 20, 2023, it demerged its financial lending arm, Jio Financial Services (JFS). The swap ratio for the demerger was 1:1, i.e., for every share held in Reliance Industries, you will receive one share of JFS.

While the demerged entity is yet to be listed, one question is already bugging existing shareholders: how will they get taxed?

So, here's our attempt to demystify the tax questions of this mega demerger.

What will be the cost of acquisition?

Your capital gains are based on your cost of acquisition, i.e., the price at which you purchased the shares of a company.

In the case of Jio Financial Services, the cost of acquisition will be based on the price at which you initially acquired the shares of Reliance Industries. As per the official filings, the cost of acquisition must be apportioned as 95.32 per cent towards Reliance Industries and 4.68 per cent for Jio Financial Services.

For example, suppose you purchased a share of Reliance Industries on March 01, 2021, at Rs 2,179. Then, post-demerger, your cost of acquisition for the share of Reliance Industries will be Rs 2,077 (95.32 per cent of Rs 2,179), and your cost of acquisition for your allotted share of JFS will be Rs 102 (4.68 per cent of Rs 2,179).

How much tax you will have to pay

Your holding period and your capital gains determine your tax implications. In the above scenario, if you sell your shares of Jio Financial Services, say for Rs 202, then you will be taxed on the capital gain of Rs 100 (Rs 202 - Rs 102). But your tax slab will be based on your holding period.

Your holding period will be calculated based on your initial purchase date of Reliance Industries' shares and not from the listing date of JFS.

If you purchased shares of Reliance Industries more than a year ago from your selling date, you will be charged a long-term capital gains (LTCG) tax of 10 per cent. However, note that LTCG is only charged if your capital gains exceed Rs 1,00,000.

If you purchased shares of Reliance Industries less than a year ago, you will be charged a short-term capital gains tax (STCG) of 15 per cent.

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Once Jio Financial Services gets listed, you will be able to see your tax liability for your holdings under the tax report section of My Investment.

Suggested read: Jio Finance is set to demerge from the Reliance Industries