Hi @UpperCircuit,
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.