Published: October 2025
The demerger of Tata Motors into Tata Motors Passenger Vehicles Ltd (TMPV) and TML Commercial Vehicles Ltd (TMLCV) is a major event for shareholders. From a tax point of view, the demerger is tax-neutral at the time of allotment. The main points for investors are cost allocation, continuity of holding period, taxation on sale, and the timing of share credit in Demat and trading accounts.
1. Is Receiving New Shares Taxable?
No. Under Section 47 of the Income Tax Act, transfer of shares in a demerger is not treated as a taxable transfer. This means:
- No capital gains tax is payable when you receive TMLCV shares.
- The allotment itself is tax-free.
2. Cost of Acquisition – How It Will Be Split
Your original purchase cost of Tata Motors shares must be divided between TMPV and TMLCV based on the Net Book Value (NBV) of assets. Tata Motors will announce this ratio.
Illustration (for understanding only):
- 100 Tata Motors shares bought @ ₹600 = ₹60,000 total cost.
- If NBV split is 55% TMPV and 45% TMLCV:
- Cost for TMPV = ₹33,000 (₹330 per share)
- Cost for TMLCV = ₹27,000 (₹270 per share)
3. Holding Period – Continuity Maintained
Your original holding period of Tata Motors shares continues for both companies. If your shares were already long-term (held for more than 12 months), both TMPV and TMLCV will also be treated as long-term holdings.
4. When Will You Pay Capital Gains Tax?
Tax applies only when you sell the shares:
- Sold within 12 months: Short Term Capital Gains (STCG) @ 15%.
- Sold after 12 months: Long Term Capital Gains (LTCG) @ 10% (above ₹1 lakh exemption, without indexation).
5. Example Calculation
Assume you bought 100 Tata Motors shares for ₹600 each (₹60,000 total). If the cost is split 55:45:
- TMPV cost = ₹33,000 → If sold for ₹40,000 → Gain = ₹7,000
- TMLCV cost = ₹27,000 → If sold for ₹26,000 → Loss = ₹1,000
Net taxable LTCG = ₹6,000 (if holding period exceeds 12 months).
6. When & How the New Shares Get Credited
The process for shareholders is as follows:
- Record Date: If you hold Tata Motors shares on the record date, you will be allotted TMLCV shares.
- Allotment & ISIN Creation: After the demerger, a new ISIN is created for TMLCV.
- Credit in Demat: Shares are first credited to your CDSL Demat account under corporate action. Until listing, they may show as “suspended for trading / not listed”.
- Trading Visibility: Once the new ISIN is activated by the exchanges, the shares automatically become visible and tradable in your ProStocks account.
Key Takeaway
The Tata Motors demerger does not attract tax at the time of allotment. Tax arises only when you sell the shares, based on the apportioned cost and your holding period. Shareholders should note that the new TMLCV shares will first appear in their CDSL Demat account and will be visible for trading in their ProStocks account once the new ISIN is active.
