Mr. Y holds 100 shares of Company X that he purchased in 2005 for Rs. 1,000. The company is now making an open offer to purchase shares at Rs. 1,650 per share. Mr. Y is trying to determine if he should tender his shares in the open offer or sell them on the market. Calculations show that if he tenders in the open offer, his net gain would be Rs. 63,589.5 after long term capital gains tax. If he sells on the market at Rs. 1,620 per share, his net gain would be Rs. 62,000 as there would be no capital gains tax liability. Mr. Y must decide whether the slightly higher net gain from the open

1. Submitted to : Mr. Himal Parikh
MBA (IIM-A)
Submitted by : Prashant Maharshi

2.  Offer made by the company.
 A chance for small investors to exit market by getting a
premium on their shares.
 This exit route is known as open offer.
 Generally firms having rich cash, use it to consolidate
their holdings.
 It is also done to delist shares from the exchanges.
 Offer Price should not be less than average price for
the last 26 weeks.

3. • Short Term Capital Gains Tax Liability
If you tender shares in an You will have to pay tax according to
open offer your tax slab
If you sell shares in the You will have to pay tax at the rate of
market 15%
• Long Term Capital Gains Tax Liability
If you tender shares in You will have to pay 20% tax with
san open offer indexation or 10% without it.
If you sell shares in the
You will not have to pay any tax
market

4. • One can tender shares or sell them in the
open market.
• If one is confused, then he can simply
calculate his tax liability as soon as the share
price surges on the announcement of an open
offer.

5. The Promoter of Company X want to delist it from the exchange and have
made an open to the shareholders. Prior to the offer, the shares were
trading at Rs. 1,500. The Open offer was made at Rs. 1,650 per share.
The Share price surged by 8% to Rs. 1,620 on announcement of the open
offer. Here’s the tax liability for both……..
Mr. Y is perplexed whether he should tender his share holding in Company X
in the open offer or sell it in the open market. He falls under the 20%
income tax bracket.

6. Particulars Our Details Mr. Y’s details
a) Date of purchase 10 July 2005
b) Purchase price Rs. 1,000
c) No. of units purchased 100
d) Investment value at purchase price (b x c) Rs. 1,00,000
e) Open offer price Rs. 1,650
f) Investment value at open offer price (e x c) Rs. 1,65,000
g) Short-term capital gains under open offer (f – d) Rs. 65,000
h) Tax liability under open offer (g x tax slab rate, say, 20%) Rs. 13,000
i) Net gain under open offer (g – h) Rs. 52,000

7. Particulars Our Details Mr. Y’s details
j) Market price Rs. 1,620
k) Investment value of market price (j x c) Rs. 1,62,000
Short-term capital gains under market sale
l)
(k-d) Rs. 62,000
m) Tax liability under market sale (l x 15%) Rs. 9,300
n) Net gain under market sale (l-m) Rs. 52,700

8. Particulars Our Details Mr. Y’s Details
a) Date of Purchase 10 July 2005
b) Purchase price Rs. 1,000
c) No. of units purchased 100
d) Investment value at purchase price (b x c) Rs. 1,00,000
e) Cost inflation index for purchase year of 2005-06 497
f) Cost inflation index for sale year of 2011-12 785
g) Indexed purchase price (b x [f/e]) Rs. 1,579.5
h) Investment value at indexed purchase price (g x c) Rs. 1,57,947.7
i) Open offer price Rs. 1,650
j) Investment value at open offer price (f x d) Rs. 1,65,000
k) Long-term capital gains without indexation (j – d) Rs. 65,000

9. Particulars Our Details Mr. Y’s Details
l) Tax liability without indexation (k x 10%) Rs. 6,500
m) Net gain under open offer without indexation (k – l) Rs. 58,500
n) Long-term capital gains with indexation (j – h) Rs. 7,052.3
o) Tax liability with indexation (n x 20%) Rs. 1,410.5
p) Net gain under open offer with indexation (k – o) Rs. 63,589.5
q) Market price Rs. 1,620
r) Investment value at market price (q x c) Rs. 1,62,000
s) Long-term capital gains under market sale (r – d) Rs. 62,000
t) Tax liability under market sale Nil
u) Net gain under market sale Rs. 62,000