Tata Motors Ltd. has introduced an illustrative tax calculator to assist shareholders in determining the tax implications of its upcoming Differential Voting Rights share swap. The tool is available along with frequently asked questions, or FAQs, released by the company and provides essential guidance for shareholders to understand their tax liabilities in light of the upcoming transaction.
Tata Motors is set to execute a significant scheme involving its DVR shares. Under this scheme, the company will cancel its listed DVR shares and issue ordinary shares as compensation. Specifically, for every 10 DVR shares held, investors will receive 7 ordinary shares. This swap, which has been approved by the National Company Law Tribunal, is aimed at simplifying the company's capital structure and improving liquidity.
The DVR swap will have several tax implications for shareholders:
The delisting constitutes a capital reduction, having the same implications as a liquidation. When the shares are delisted in 12–15 months, all accumulated profits on the balance sheet at that given point will be considered a dividend to current DVR shareholders. As a result, the deemed dividend would have tax consequences (withholding tax).
Different people purchasing DVR shares at different times result in different cost bases. Long-term capital gains from these transactions will be taxed.
The cancellation requires the company to establish a new trust to accept and sell company shares. Any short-term capital gains earned during the period would also be taxed.
Details Of Share Swap
The DVR shares, which have been trading since 2008, will be swapped for ordinary shares at a rate of 7 ordinary shares for every 10 DVR shares. This swap will be done on Sept. 1, 2024, with the listing and trading approval of the new ordinary shares starting on Sept. 11. The shares will be credited to accounts on Sept. 18, and remittance of cash entitlements will happen on Sept. 21.
Accessing The Calculator
Shareholders can access the illustrative tax calculator and the FAQs below. This tool will help shareholders estimate the number of shares they will receive post-tax settlement and provide clarity on the tax obligations arising from the swap.
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