Tata Motors has suspended DVR shares, setting a 10:7 conversion ratio, resulting in a 4% share capital reduction. The conversion involves exchanging 10 ‘A’ ordinary shares for seven new ordinary shares. A record date of September 1 will identify eligible shareholders.
To manage the capital reduction, Tata Motors has established the TML Securities Trust with Axis Trustee Services as the Independent Trustee. This trust will issue new ordinary shares to ‘A’ ordinary shareholders, effectively managing the reduction and redistribution of shares.
Under this scheme, the distribution of new shares is treated as a distribution of accumulated profits, which are considered a deemed dividend under Section 2(22)(d) of the Indian Income Tax Act, 1961. Consequently, these profits will be taxed as dividends in the hands of shareholders, subject to applicable taxes and TDS.
The TML Securities Trust will handle the TDS on the deemed dividend by selling a portion of the newly allotted ordinary shares within 15 days post-September 1. Shareholders can claim the TDS back on their income tax returns using a certificate issued by the trust.
The trust will also cover short-term capital gains taxes from the sale of shares to finance the TDS. After taxes, the net quantity of shares will be allotted to shareholders, reducing the number of shares allotted to non-exempt shareholders by the amount of TDS, which can later be claimed on tax returns.
