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.
Unfortunately, the concept of “deemed dividend will be reduced from the consideration amount” is not clear still. I also reached out to Tata Motors by email, and they have not responded.
The CG calculation depends on the deemed dividend component, but CG is further split into LTCG and STCG. So is the deemed dividend to be deducted from the LTCG or STCG, or proportionately?
In my example, I have:
500 shares of DVR held for Long Term (>12 months)
Cost of acquisition: ₹149,741.90
70 shares of DVR held for Short Term (<12 months)
Cost of acquisition: ₹38,725.75
Deemed dividend received on share swap: ₹200.63 * 570 = ₹114,357.46
Dividend received in June 2024: ₹3534
So, 13 shares were sold at ₹967 each (₹967 * 13 = ₹12571, which is sum of above TDS and cash payout).
How was this ₹967 value calculated to sell the shares for paying TDS?
Once again, to compute LTCG & STCG, where should I deduct the deemed dividend of ₹114,357.46?
If I deduct it from the total consideration amount, then effectively, the dividend is getting proportionally split between LTCG & STCG? Is this even allowed, as there is no concept of “long term” and “short term” for dividends?
Moreover, the Tax P&L statement from Zerodha console is not matching any of these above numbers.
Also, I sold the 386 ordinary shares of Tata Motors on Oct 31, 2024 at ₹833.3. Since the buying price of those shares was effectively, ₹1111.35, I should have a STCL, but Zerodha’s statement still shows me having LTCG for that transaction.
