I had 570 DVR shares. I have received 386 shares of Tata Motors and ₹781 (which is fine, I understood how the TDS was calculated and verified it).
Of these, 500 shares were purchased before Sep 2023 (Long Term), and 70 shares after Sep 2023 (Short Term). Tata Motors’ email says all the DVR shares were considered as Short Term assets.
Now my questions as following, from a tax computation perspective:
Can I split the Capital Gain and the Deemed Dividend into Long Term and Short Term Gains?
Should I consider the DVR shares as a Sale transaction, and the new Tata Motors shares as a Buy transaction? If so, what should be the transaction dates for these?
What kind of income is that ₹781 credited to my bank account?
If/when in future, I sell those new Tata Motors shares, what purchase price should I consider to calculate the Capital Gain? Is it the ₹1111.35 mentioned as cost of acquisition in Tata Motors email?
The ordinary shares you receive in exchange for the DVR shares will include two components: deemed dividend and capital consideration.
This results in two types of income:
Dividend, which will be taxed as income from other sources.
Capital gains, which will be classified as either long-term or short-term.
Tax on dividend income
The deemed dividend will be added to your total income and taxed according to your applicable slab rate. If the dividend amount exceeds ₹5,000, TDS will be deducted from your total consideration amount, which means you’ll be receiving lesser number of shares. However, you’ll be able to claim this TDS as a tax credit when you file the ITR.
Tax on capital gains
The tax rate on capital gains will depend on whether the gains are short-term or long-term. The holding period in this case will be calculated from the time when you had originally purchased the DVR shares.
If holding period > 12 months, gains will be long-term and taxed at 12.5%.
If holding period < 12 months, gains will be short-term and taxed at 20%.
At this point, you haven’t sold the ordinary shares you received. If you decide to sell them later, capital gains tax will apply again. However, since you already paid taxes at the time of the transfer, the cost of acquisition for these ordinary shares will be considered the closing price as of 30 August 2024 and this must be mentioned in the email.
It is unclear what to do with the deemed dividend while calculating LTCG and STCG. The communication from Tata Motors says that it was deducated to calculate “Capital Gains”. (see attached screenshot)
In that case, shouldn’t the deemed dividend also be split into ST deemed dividend and LT deemed dividend? Otherwise the 7 = (6) - (1) - cost of acquisition shown in the screenshot doesn’t make any sense.
