7 ordinary shares will be issued for every 10 A-shares held
MUMBAI: 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.
Value of A-shares
The value of 10 A-shares stood at Rs7,490, Rs 17, 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 apply 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.
Dividend distribution tax
This will lead to the 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.
