Tata Motors has fixed September 1 as the record date for the conversion of shares with differential voting rights (DVR) (also known as A-ordinary shares) into ordinary shares.
Under the plan, first proposed in July 2023, seven ordinary shares of Tata Motors will be issued for every 10 A-shares held and its outstanding A-shares will stand cancelled.
At the end of Tuesday’s trade, the DVR conversion plan presented a small arbitrage opportunity to only certain categories of investors such as mutual funds and insurance companies, who don’t face any tax implications.
The value of 10 A-shares stood at Rs 7,490, Rs 117, or 1.54 per cent, lower than Rs 7,607, the value of seven ordinary shares.
Shareholders buying the DVRs could be a cheaper alternative to buy shares of Tata Motors. However, this may not be applicable to all investors as the conversion plan has three-levels of tax implications.
First, the cancellation of A-shares will be deemed as ‘dividend payout’ on accumulated profits at Tata Motors when the scheme becomes effective.
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This will lead to withholding of dividend distribution tax. Thereafter, any money A-shareholders get after the deemed dividend minus their cost of acquisition will be treated as long-term capital gains tax.
There will be a small element of short-term capital gains tax when the independent trust—set up to carry out this capital reduction scheme – will buy and sell shares to pay the withholding taxes.
Tata Motors on Monday issued a detailed notice intimating tax deduction applicable to various categories of investors.
