If you recently participated in the Tata Motors merger and noticed you may have received fewer shares than expected, you’re not alone. This can be confusing, but it’s due to some shares being sold to cover the Tax Deducted at Source (TDS) on deemed dividends (amounts treated as dividends for tax purposes, even if not actually paid out). To help you understand why this happened and how it affects you, here’s a simple breakdown:
Q: What was my expected share allocation?
A: For example, if you owned 100 Tata Motors DVR shares at ₹100 each (totalling ₹10,000), you were expecting to get 70 Tata Motors shares based on the 10:7 swap ratio from the merger.
Q: What are deemed dividends and how does TDS work?
A: During the merger, part of the company’s profits was treated as deemed dividends. If the deemed dividend was ₹20 per DVR share, your total deemed dividend for 100 shares would be ₹2,000. The company deducts 10% TDS (which is ₹200) to pay to the government on your behalf. You can claim this back when filing your taxes.
Q: Why were some of my shares sold?
A: To cover the ₹200 TDS, the company sold about 1 of your Tata Motors shares. If the share price was ₹500, they sold 1 share for ₹500.
Q: How many shares did I receive after the sale?
A: You initially expected 70 shares, but after selling 1 to cover TDS, you ended up with 69 shares.
Q: What happens to any leftover money from the sale?
A: Any extra money from the sale of shares will be credited to your bank account within 45 to 60 days.
Q: How do I calculate my new average price per share?
A: Your total investment was ₹10,000 for 100 DVR shares. After the swap, the new average price per share is calculated as:
- New Average Price = ₹10,000 ÷ 70 = ₹142.86 per share.
Q: How will taxes apply when I sell my shares?
A: If you sell your 69 shares at ₹600 each, here’s how your profits work out:
1. Capital Gain per Share:
Selling Price - New Average Price = ₹600 - ₹142.86 = ₹457.14.
This means you make ₹457.14 profit on each share.
2.Total Capital Gain for 69 Shares:
69 shares × ₹457.14 = ₹31,428.66.
So, your total profit from selling all 69 shares is ₹31,428.66.
3.Adjusting for Deemed Dividend:
From your total profit, you need to subtract the ₹2,000 deemed dividend.
Adjusted Capital Gains = ₹31,428.66 - ₹2,000 = ₹29,428.66.
This ₹29,428.66 is what will be taxed as Long-Term Capital Gains (LTCG). If your total LTCG for the year is under ₹1 lakh, you might not have to pay any tax on it!
