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Capital Gains (Securities)

Tendering Indian shares in a delisting, open offer or squeeze-out

The gain is a normal capital gain, but the usual listed-share concession does not apply, because no STT is paid.

A company you hold shares in is delisting, or an acquirer has made an open offer, or you are being squeezed out, and you have tendered your shares for a price. You expect the gain to be taxed like any listed-share gain, at the concessional rate with the ₹1.25 lakh exemption. There is a nasty catch: because these tenders usually carry no securities transaction tax, that concession does not apply, and the gain is taxed under the ordinary rules instead. Knowing this before you tender, and the NRI TDS point, avoids an unpleasant surprise.
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Last reviewed: 26 July 20266 min readReviewed by Preetesh Maloo, CA

The short answer

Tendering your shares in a delisting, a takeover open offer or a squeeze-out is a transfer, so it is a capital gain, computed the ordinary way, sale price less cost. The trap is that these tenders usually do not attract securities transaction tax, and the concessional listed-share regime, the lower long-term rate with the ₹1.25 lakh exemption and the 2018 grandfathering, only applies when STT was paid. So without STT, the gain falls under the general rule: long-term at 12.5% but with no ₹1.25 lakh exemption, and short-term at your slab rate rather than the flat 20%. For an NRI, the acquirer or company must deduct TDS under Section 195 on the gain.

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Related situations

It is a capital gain, but not the concessional kind

When you tender your shares into a delisting offer, an acquirer's open offer or a squeeze-out, you are selling them, so it is a transfer and a capital gain, computed the ordinary way under Sections 45 and 48, the price you receive less your cost. So far, so normal.

The surprise is the rate. The concessional treatment that listed-share investors expect, the lower long-term rate with a ₹1.25 lakh annual exemption and the grandfathering of pre-2018 gains, all sits under Section 112A, and that section applies only where securities transaction tax was paid on the sale. Tenders into delistings, open offers and squeeze-outs are usually structured outside the STT net, even when routed through an exchange window, so no STT is paid. Which means Section 112A does not apply, and your gain drops into the general rule under Section 112 instead. There, a long-term gain is still 12.5%, but you lose the ₹1.25 lakh exemption and the grandfathering, and a short-term gain is taxed at your slab rate rather than the flat 20%. So the same shares, tendered rather than sold on the market, can carry more tax.

The NRI TDS, and planning around it

For an NRI there is a withholding step. Because you are a non-resident, the acquirer or the company must deduct TDS under Section 195 on the sum they pay you, on the gain, not the flat 1% that applies to a resident, and there is no small threshold. They will withhold at the applicable capital-gains rate unless you reduce it.

You can reduce it. A lower-deduction certificate, supported by your cost computation, brings the withholding down to the real gain rather than a gross figure, and a treaty rate can apply where it helps. The main thing is to go in knowing the gain is taxed under the general rule, not the concessional one, so you are not caught out by a bigger bill than a market sale would have carried, and so the TDS is set correctly. A practising CA computes the gain on the right basis, gets the lower-deduction certificate, and reconciles the TDS.

What's involved

What the CA actually does

  1. 1

    We compute on the right basis

    We tax the tendered gain under the general rule that applies without STT, so the figure is correct and you are not surprised by the lost exemption.

  2. 2

    We fix the cost

    We establish your cost, including any grandfathered value where it still helps, so the gain is not overstated.

  3. 3

    We reduce the TDS

    We get a lower-deduction certificate so the acquirer withholds on your real gain, not the gross price, and apply a treaty rate where it helps.

  4. 4

    We reconcile it on your return

    We set the Section 195 TDS against the tax and reclaim any excess when you file.

What to have ready

Documents you'll typically need

  • The delisting or open-offer letter and the price
  • Your cost in the shares and purchase dates
  • Whether STT was paid on the tender
  • Your PAN, TRC and residency details

Your destination country can change the details

Requirements differ from one consulate, university and visa route to the next, how recent the figures must be, how long funds must have been held, and which certificates are mandatory. We assemble the documents around the exact checklist you're applying under. To see how India's tax treaty with your country of residence affects related filings, set your country below or compare all 46 countries.

References on this page

  • Tendering in a delisting, open offer or squeeze-out is a transfer, taxed as a capital gain (Sections 45, 48)
  • These tenders usually carry no STT, so the concessional listed-share regime (Section 112A) does not apply
  • Without STT, the gain is taxed under Section 112: long-term 12.5% with no ₹1.25 lakh exemption, short-term at slab
  • For an NRI, the acquirer or company deducts TDS under Section 195 on the gain

Frequently asked questions

Common questions

Yes. Tendering in a delisting, open offer or squeeze-out is a transfer, so it is a capital gain, computed as the price you receive less your cost. But the rate is not the concessional listed-share one, because no STT is paid.

Because that exemption, and the concessional long-term rate and grandfathering, sit under Section 112A, which only applies when STT was paid. Delisting and open-offer tenders usually carry no STT, so the gain falls under the general Section 112 rule instead.

It can be. Without STT you lose the ₹1.25 lakh exemption on a long-term gain, and a short-term gain is taxed at your slab rate rather than the flat 20%. So tendering can cost more tax than selling on the market would have.

Yes. The acquirer or company deducts TDS under Section 195 on your gain. A lower-deduction certificate brings it down to your real gain, and a treaty rate can apply, so it is worth arranging before you tender.

The exceptions that change the answer

Where the general rule stops applying to you

Every rule below has a carve-out, a cut-off date or a condition that flips the answer. These are the ones that decide real cases.

Grandfathering date for listed equity acquired before the s.112A regime

Right now: 31 January 2018 fair market value

Where it works differently

Shares were held on 31 January 2018
Cost is the HIGHER of actual cost and the 31 Jan 2018 FMV, but capped at the actual sale consideration, so grandfathering can never create a loss.
Clause (a) of the s.112A computation.
The 2024 rate change happened
Grandfathering survived it. The rate moved 10% to 12.5%; the 31 Jan 2018 base did not change.
Finance (No. 2) Act 2024 left the cost rule intact.

Commonly got wrong

  • The 2024 changes removed the 31 January 2018 grandfathering. They changed the rate, not the cost base.For shares held on 31 January 2018, cost is still the higher of actual cost and the 31 Jan 2018 fair market value, capped at the sale price.

Related

If this matched your situation, these go further

When an Indian company reduces its capital and pays youThe grandfathered cost of listed shares you bought before 2018Selling shares in an unlisted or private Indian company, as an NRINRI ITR filing (we file for you)DTAA TDS recoveryStocks / equity redemption coordinationCapital gains calculatorForm 10F generator

Tendering shares in a delisting or open offer?

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