26. Tax neutral conversion of preference shares to equity shares.
26.1 Conversion of security from one form to another is regarded as transfer for the purpose of levy of capital gains tax under the provisions of the Income-tax Act. However, tax neutrality on conversion of bond or debenture of a company to share or debenture of that company is provided under section 47 of the Income-tax Act. Before amendment by the Act, similar tax neutrality has not been provided on conversion of preference share of a company into its equity share.
26.2 In order to provide tax neutrality to the conversion of preference share of a company into equity share of that company, section 47 of the Income-tax Act has been amended to provide that the conversion of preference share of a company into its equity share shall not be regarded as transfer.
26.3 Consequently, section 49 and section 2(42A) of the Income-tax Act have also been amended in respect of cost of acquisition and period of holding.
26.4 Applicability: These amendments take effect from 1st April, 2018 and will, accordingly, apply from assessment year 2018-19 and subsequent years.