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Capital gains tax will apply when investors sell shares of either Tata Motors Passenger Vehicles or Tata Motors Commercial Vehicles
Tata Motors Demerger
Tata Motors’ long-awaited demerger became effective on October 1, officially separating its Passenger Vehicle (PV) and Commercial Vehicle (CV) businesses into two independent listed companies.
The existing Tata Motors Ltd shares have now been renamed Tata Motors Passenger Vehicles Ltd (TMPV).
Shareholders holding Tata Motors shares as of the record date — October 14 — have received one equity share of Tata Motors Commercial Vehicles Ltd (TMLCV) for every one share held in Tata Motors Ltd. This results in parallel holdings in both TMLCV and TMPV.
The newly created TML Commercial Vehicles Ltd is expected to be listed on the stock exchanges in November.
The demerger carries several regulatory and tax implications for investors — both at the time of receiving new shares and when selling them in the future.
Tax Implications of Tata Motors Demerger
Under India’s Income Tax Act, the allotment of TMLCV shares as part of the demerger does not trigger any immediate capital gains tax. This is because the transaction is not treated as a “transfer”, meaning shareholders do not face any tax liability when the new shares are credited to their demat accounts.
However, capital gains tax will apply when investors sell shares of either Tata Motors Passenger Vehicles (TMPV) or Tata Motors Commercial Vehicles (TMLCV).
To compute gains, investors must allocate the original purchase cost of Tata Motors shares between the two companies using a cost allocation ratio that will be announced by the company or its registrar (RTA).
This ratio is typically derived from the net book value (NBV) of each business rather than their market prices — often around 60:40, though the exact figure will be confirmed later.
Importantly, the holding period for the new TMLCV shares will be counted from the original date of purchase of Tata Motors shares — not from the demerger or share credit date. This determines whether any capital gains are short-term (STCG) or long-term (LTCG).
LTCG and STCG Rules for Tata Motors Demerger
- Long-Term Capital Gains (LTCG):If shares are held for more than 12 months, gains exceeding Rs 1.25 lakh are taxed at 12.5%.
- Short-Term Capital Gains (STCG):If shares are sold within 12 months, gains are taxed at 20%, based on the apportioned cost.
- Dividends:Taxed according to the investor’s income tax slab, with 10% TDS applicable if total dividend income exceeds Rs 10,000 in a financial year.
While no tax arises at the time of demerger, shareholders should:
- Maintain records of their original Tata Motors purchase date.
- Note the cost allocation ratio once declared by the company.
- Consult a tax advisor to assess the precise impact on their holdings.
FAQs: Tata Motors Demerger and Taxation
1. Will I have to pay tax when I receive TMLCV shares?
No. The receipt of TMLCV shares after the demerger is not considered a transfer, so no tax is payable at that stage.
2. When will I need to pay tax?
You will pay capital gains tax only when you sell shares of either TMPV or TMLCV.
3. How is my purchase cost calculated?
The cost of your original Tata Motors shares will be split between TMPV and TMLCV based on a ratio (e.g., 60:40) notified by the company.
4. Does my holding period reset after the demerger?
No. The original purchase date of Tata Motors shares will continue to determine short-term or long-term classification.
5. How will dividends be taxed?
Dividends from either entity will be taxed as per your income slab, with 10% TDS if total dividend income exceeds Rs 10,000 in a year.
Aparna Deb is a Subeditor and writes for the business vertical of News18.com. She has a nose for news that matters. She is inquisitive and curious about things. Among other things, financial markets, economy, a…Read More
Aparna Deb is a Subeditor and writes for the business vertical of News18.com. She has a nose for news that matters. She is inquisitive and curious about things. Among other things, financial markets, economy, a… Read More
October 29, 2025, 13:27 IST
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