Tata Motors Demerger: Tax Implications for Shareholders Receiving Tata Motors Commercial Vehicles Shares Explained

Tata Motors’ strategic demerger into two distinct listed entities—Tata Motors Passenger Vehicles Ltd (TMPV) and Tata Motors Commercial Vehicles Ltd (TMLCV)—has officially taken effect from October 1, 2025. Shareholders holding Tata Motors shares as of the record date, October 14, 2025, have received one equity share of TMLCV for every one share held in Tata Motors Ltd. While this corporate restructuring aims to unlock value and sharpen business focus, it also raises important questions about the tax implications for shareholders receiving the new TMLCV shares.

📊 Demerger Snapshot: Tata Motors Restructuring Overview

This demerger is tax-neutral under Indian tax laws, but capital gains tax implications arise at the time of sale.

💰 Tax Implications for Shareholders

The demerger is governed by Sections 2(19AA) and 47 of the Income Tax Act, 1961. As per these provisions, the transfer of assets under a demerger is not treated as a “transfer” for capital gains purposes, making the demerger itself tax-neutral. However, tax implications arise when shareholders sell either TMPV or TMLCV shares.

1. Cost of Acquisition Allocation

The cost of acquisition of original Tata Motors shares must be apportioned between TMPV and TMLCV in a manner prescribed by the company. Tata Motors is expected to notify the cost allocation ratio based on the net book value or market value of the two businesses.

This ensures that the holding period for both TMPV and TMLCV shares is calculated from the date of acquisition of the original Tata Motors shares.

2. Capital Gains Tax on Sale

When shareholders sell either TMPV or TMLCV shares, capital gains will be computed based on the apportioned cost and the original acquisition date.

🧠 Example: Tax Calculation Post-Demerger

Suppose an investor bought 100 Tata Motors shares at ₹400 each in 2023. After the demerger:

• They receive 100 TMPV shares and 100 TMLCV shares.
• Tata Motors notifies a cost split ratio of 60:40 (TMPV:TMLCV).

If the investor sells TMLCV shares in December 2025, the gain will be taxed as LTCG if held for more than 12 months.

📌 Key Considerations for Shareholders

• No tax at the time of demerger: The allotment of TMLCV shares is not a taxable event.
• Capital gains tax applies only on sale: Tax is triggered when shares are sold, not when received.
• Cost allocation is crucial: Investors must use the notified ratio to determine capital gains accurately.
• Holding period continuity: The original acquisition date of Tata Motors shares applies to both TMPV and TMLCV.

🗣️ Expert Insights

Tax professionals advise shareholders to maintain detailed records of their original purchase date and cost, and to await the official cost allocation ratio from Tata Motors before making any sale decisions. Misreporting or incorrect cost allocation could lead to tax disputes or penalties.

📅 Timeline of Events

Investors planning to sell either TMPV or TMLCV shares in the near term should consult tax advisors to ensure compliance.

Disclaimer: This article is for informational purposes only and does not constitute tax or investment advice. Shareholders are advised to consult with certified tax professionals for personalized guidance.