Tata Motors Releases Tax Calculator For DVR Share Swap Ahead Of Record Date

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.