Tata Motors has set a record date of September 1 for determining the names of the holders of A-ordinary shares (also referred to as shares with differential voting rights or DVR) who will be entitled to receive ordinary shares under the conversion plan.
Under the plan, first proposed in July 2023, seven ordinary shares of Tata Motors will be issued for every 10 A-shares held, and all its outstanding A-shares will be cancelled.
At the end of Tuesday’s trade, the DVR conversion plan presented a small arbitrage opportunity to certain categories of investors, such as mutual funds and insurance companies, who don’t face any tax implications.
The value of 10 A-shares stood at Rs 7,490, Rs 117, or 1.54 per cent, lower than Rs 7,607, the value of seven ordinary shares. In other words, shareholders buying the DVRs could find it a cheaper alternative to buying shares of Tata Motors. However, this may not be applicable to all investors, as the conversion plan has three levels of tax implications. First, the cancellation of A-shares will be deemed as a ‘dividend payout’ on accumulated profits at Tata Motors when the scheme becomes effective. This will lead to the withholding of dividend distribution tax. Thereafter, any money A-shareholders receive after the deemed dividend minus their cost of acquisition will be treated as long-term capital gains tax. Also, there will be a small element of short-term capital gains tax when the independent trust—set up to carry out this capital reduction scheme—buys and sells shares to pay the withholding taxes.
Tata Motors on Monday issued a detailed notice intimating tax deductions applicable to various categories of investors.
First Published: Aug 20 2024 | 5:17 PM IST
