Tata Motors Demerger: Tax Implications For Shareholders Receiving CV Unit Shares

Tata Motors has completed its long-anticipated demerger, separating its Commercial Vehicle (CV) and Passenger Vehicle (PV) businesses into two independently listed entities. This strategic move aims to enhance focus, improve efficiency, and unlock long-term value for shareholders. As part of this demerger, shareholders of Tata Motors received shares in Tata Motors Commercial Vehicles Ltd (TMLCV) for every share they held in Tata Motors. The record date for the demerger was October 14, 2025, and the approved share entitlement ratio was 1:1. Trading adjustments reflected the split immediately. Tata Motors has been renamed Tata Motors Passenger Vehicles Limited (TMPV), effective October 24, 2025. Meanwhile, TMLCV is expected to debut on Indian bourses in November 2025. While the demerger promises strategic advantages, it's crucial for shareholders to understand the tax implications arising from receiving shares of the CV unit.

No Immediate Capital Gains Tax

The allotment of new shares in TMLCV is not considered a transfer of shares, and therefore does not trigger an immediate capital gains tax. Since shareholders are simply receiving new shares, there are no tax implications at the time of allotment.

Cost of Acquisition Adjustment

Following the demerger, the original cost of investment (acquisition cost) of Tata Motors shares will be split between the two entities: TMPV and TMLCV. This split is crucial because the adjusted cost price will be used to calculate capital gains when shareholders eventually sell their shares in either company. While the exact methodology for this cost allocation may vary, it generally reflects the relative valuation of the two businesses at the time of the demerger. For instance, if the value split is 60:40 between TMPV and TMLCV, then the original purchase price would be divided accordingly to determine the new cost basis for each share.

Holding Period

The holding period for the TMLCV shares will be calculated from the date when the shareholder originally purchased the Tata Motors shares, not from the demerger date or the date the shares were credited to their demat account. This is significant for determining whether gains are classified as short-term or long-term capital gains.

Taxation Upon Selling Shares

Capital gains tax will only be applicable when the shareholder sells the shares of either TMPV or TMLCV. The tax will be calculated based on the difference between the selling price and the adjusted cost of acquisition. The applicable tax rate will depend on the holding period:

• Long-Term Capital Gains (LTCG): If the shares are held for more than 12 months, any gains exceeding ₹1 lakh in a financial year will be taxed at 12.5% under Section 112A of the Income Tax Act, 1961.
• Short-Term Capital Gains (STCG): If the shares are sold within 12 months, the gains will be taxed at 20% under Section 111A.

Dividends

Following the demerger, both TMPV and TMLCV can declare dividends independently. Dividends received will be added to the shareholder's income and taxed according to their applicable income tax slab rates. If the total dividend income exceeds ₹10,000 in a financial year, Tax Deducted at Source (TDS) at 10% will be applicable.

Share Allocation and Trading

For every one share of Tata Motors held on the record date, shareholders received one fully paid-up share of TMLCV. Tata Motors confirmed that 368.23 crore fully paid equity shares of face value ₹2 each have been allotted to eligible shareholders of TMLCV under the 1:1 ratio. While TMLCV shares are visible in shareholders' demat accounts, they are not yet tradable pending regulatory approvals. Trading is expected to commence in late November 2025.

The demerger of Tata Motors into two separate entities marks a significant corporate restructuring. While the move is intended to unlock value and promote focused growth, shareholders should be mindful of the tax implications. Understanding the adjusted cost of acquisition, holding period rules, and taxation on dividends is essential for making informed investment decisions.