Cost apportionment on split or consolidation

A stock split or a share consolidation changes how many shares an investor holds, but it does not change what that investor actually paid in the first place. What the tax rules do is reapportion the same original cost across the new number of shares.

Neither a split nor a consolidation is treated as a transfer, so there is no fresh cost of acquisition to compute from scratch — the original outlay is simply spread across the new share count.

After a split (one share becomes many): the amount originally paid is divided proportionately across the larger number of shares.

The workbook's Example 3: Mr A bought 1,000 shares of XYZ Ltd at Rs 150 per share — total cost Rs 1,50,000. The company splits each Rs 100 face-value share into two shares of Rs 50 face value, so Mr A now holds 2,000 shares. His cost of acquisition per share after the split is Rs 1,50,000 ÷ 2,000 = Rs 75 per share.

After a consolidation (many shares become fewer): the same principle runs in reverse — Example 2 shows 2,000 shares at Rs 100 each (Rs 2,00,000 total) consolidating into 1,000 shares at Rs 200 face value, giving a cost of Rs 200 per share.

Holding period in both cases is reckoned from the date the original shares were acquired, since neither event counts as a transfer under Section 2(47). Where the shares are held as stock-in-trade rather than as investments, ICDS-VIII requires them to be recorded in the books at cost of acquisition rather than at a revalued figure.

Side by side, the workbook's two apportionment examples from Chapter 13:

In both directions, the total cost — Rs 1,50,000 and Rs 2,00,000 respectively — never changes. Only the number of shares it is spread across does. A candidate who tries to revalue the shares at their post-event market price, instead of apportioning the original cost, will get the wrong answer on both.

Chapter 13 (Tax Provisions for Special Cases), section 13.2.1, "Cost of acquisition of shares after consolidation" and "Cost of acquisition of shares after the split," gives Examples 2 and 3 as the worked apportionment computations. Expect a per-share cost calculation after a stated split or consolidation ratio, using the original purchase price.

• Apportion the original cost — never restart from market value at the time of the split or consolidation.
• The total cost is unchanged; only the per-share figure moves, because the share count moved.
• Split increases share count and lowers cost per share; consolidation does the reverse — read the ratio direction carefully.
• Holding period is unaffected, running from the original acquisition date in both cases.