Capital gains exemption for foreign company share demergers applies when shareholding continuity and foreign tax conditions are met.

Transfer of a capital asset in a demerger, being a share of a foreign company that derives substantial value from shares of an Indian company, is treated as not a transfer when the shareholding continuity and foreign capital gains tax conditions are satisfied. The resulting foreign company takes the cost at which the previous owner acquired the property, and the specified Companies Act reconstruction provisions are stated not to apply to such demergers.

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