# Demerger

> A demerger transfers an undertaking from one company to another under an NCLT-approved scheme, with the resulting company issuing shares to the demerged company's shareholders. If the Section 2(19AA) conditions are met — all assets and liabilities of the undertaking move at book value, shareholders holding at least 75% become shareholders of the resulting company, and the undertaking continues as a going concern — there is no capital gains tax for the company or shareholders.

Practice: Mergers, Acquisitions & Restructuring — https://www.industax.com/services/mergers-acquisitions/

Demergers are used to separate businesses for different investors, prepare a unit for sale, or divide a family business among branches.

We design the scheme for tax neutrality, compute cost apportionment for shareholders, and handle approvals with counsel.

## Key facts

| Item | Detail |
| --- | --- |
| Approval | NCLT scheme under Sections 230–232 |
| Tax-neutral conditions | Section 2(19AA) |
| Shareholders | Receive shares of the resulting company |
| Cost split | Cost of original shares apportioned |

## Who needs this

- Groups separating businesses
- Families dividing a business
- Companies preparing a unit for investment

## What's included

- Scheme design
- Tax-neutrality review
- Approvals
- Shareholder cost computation

## Documents

- Financial statements by undertaking
- Shareholding
- Business plans

## Process

1. **Design** — Undertaking and scheme defined.
2. **Approve** — NCLT process completed.
3. **Separate** — Assets, staff and registrations moved.

Work that legally requires a advocate is signed by a partner professional; Indus Tax coordinates it.

## FAQs

### Demerger or slump sale?

A demerger issues shares to shareholders and can be tax-neutral; a slump sale is a sale for consideration taxed under Section 50B. The right choice depends on who should own the business afterwards.

### Can a demerger be done without NCLT?

The fast-track route under Section 233 applies to mergers and, by reference, to certain demergers between eligible classes of companies; most demergers still go through the NCLT.

### What happens to the original shareholders' cost?

The cost of their original shares is apportioned between the demerged and resulting company shares in the ratio of net worth transferred.

## Official sources

- Ministry of Corporate Affairs: https://www.mca.gov.in/
- incometaxindia.gov.in: https://www.incometaxindia.gov.in/

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Publisher: Indus Tax — CA-led tax and compliance firm (https://www.industax.com). Contact: info@industax.com, 9059139258.
This is general information, not advice for your specific facts.