Demerger
The separation of a business division into an independent company, with shares issued to the existing shareholders.
How it is identified
Test: an undertaking transfers to a resulting company, whose shares are issued to the demerged company's shareholders in proportion to their holdings
Unit
qualitative
In depth
A demerger unlocks value when a conglomerate's parts are worth more separately than the market credits them together, which is the holding company discount in reverse. Shareholders end up owning two listed companies instead of one, and the combined price after listing frequently exceeds the pre-demerger price, though this is not guaranteed. In India a demerger meeting the conditions of Section 2(19AA) is tax-neutral, with the original cost of acquisition apportioned between the two companies by their net book values. That apportionment is what determines capital gains on any later sale, and getting it wrong is a common filing error.
Worked example
A share bought at ₹500 demerges with 70% of net book value staying in the parent. The parent's cost becomes ₹350 and the resulting company's ₹150, and each future sale is computed against its own portion.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Demerger” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.