Tata Motors Demerger: How much tax will be levied once Tata Motors shares are dematerialized? Know the answers to all the questions.:

News Topical, Digital Desk : If you own Tata Motors shares, you may now have another new share in your demat account: Tata Motors Commercial Vehicles Ltd (TMLCV). This is due to the Tata Motors demerger, which took effect on October 1st. The company now has two separate divisions: Passenger Vehicles (TMPV) and Commercial Vehicles (TMLCV). The question is, will you have to pay tax on this demerger? Let's understand it simply.

What has changed at Tata Motors?
Tata Motors has separated its two major businesses, passenger vehicles and commercial vehicles. The two companies are now
Tata Motors Passenger Vehicles Ltd (TMPV) and
Tata Motors Commercial Vehicles Ltd (TMLCV).
Those who held Tata Motors shares as of the record date of October 14th now receive one TMLCV share for every one held. This means you now own two shares instead of one. The new TMLCV shares will be listed on the stock exchange in November. The

most important good news regarding taxes
is that no tax will be payable right now, as this is merely a division of shares, not a purchase or sale. According to income tax law, when a company gives new shares to its investors in a demerger, it is not considered a "transfer."
Therefore, you will not have to pay any capital gains tax at this time.

Experts on CNBC Awaaz explained that this demerger is tax-neutral. Investors will not have to pay any tax right now. The actual tax will be charged only when you sell shares in either of these companies.

How will tax be levied when you sell shares? Now, when you go ahead and sell shares of Tata Motors Passenger Vehicles or Tata Motors Commercial Vehicles, then the question of tax will arise. For this, the company will specify a cost allocation ratio, such as 60:40. This means that if you had purchased Tata Motors shares worth ₹1 lakh, then now ₹60,000 will be considered as TMPV and ₹40,000 will be considered as TMLCV. Then, whenever you sell any shares, your capital gains tax will be calculated accordingly.

Tax Rates Long-Term Capital Gain (LTCG): If you have held shares for more than 12 months, profits above ₹1.25 lakh will be taxed at 12.5%. Short-Term Capital Gain (STCG): If shares are sold before 12 months, a 20% tax will be levied. Dividend Tax: If the annual dividend exceeds ₹10,000, a 10% TDS will be deducted, with the remaining tax determined by your income slab.

The old purchase date will be considered The holding period for your new TMLCV shares will be the same as the date you purchased your old Tata Motors shares. That is, if you purchased the shares in 2023, the same date will be considered even after the demerger in 2025. This will determine whether your gain is short-term or long-term.

Recommendations for investors: There's no need to panic about the Tata Motors demerger. Keep a record of your old purchase rate and date. When the company lists the cost ratio (such as 60:40), note it. Understand the tax calculations before selling shares. Consulting a CA or tax expert is beneficial. This is a smooth transition. There are no taxes to pay, no forms to fill out. Just new shares, and now you have investments in two companies.