A demerger happens when a company splits part of its business into a separate, independently listed entity. Tata Motors recently did this, separating its passenger vehicle operations from its commercial vehicle business.
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Tata Motors Passenger Vehicles (TMPV): Includes Passenger Vehicles (PV), Electric Vehicles (EV), and Jaguar Land Rover (JLR) operations.
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Tata Motors Commercial Vehicles (TMLCV): Covers trucks, buses, and other Commercial Vehicle (CV) operations.
The demerger comes as the two businesses follow very different growth paths, require different levels of investment, and are valued differently in the market. Splitting them lets each operate independently and gives investors clearer visibility into their financial performance.
Shareholders holding Tata Motors shares as of the record date, Oct 14, 2025, will receive TMPV shares. The demerger ratio is 1:1, which means you will receive 1 share of TMLCV for every 1 share of Tata Motors you own.
Tax implications of Tata Motors
You will pay tax only when you sell your TMLCV or TMPV shares. The tax rate depends on your holding period, which continues from the date you originally bought your Tata Motors shares.
So, if you held the shares for more than 12 months, the sale will be taxed as LTCG at 12.5% (on gains above ₹1.25 lakh).
And if you held them for 12 months or less, the sale will be taxed at 20% as STCG.
Now, to calculate your profit or loss on the sale of shares, your original purchase cost of Tata Motors shares must be divided between TMLCV and TMPV. This split is required under Sections 49(2C) and 49(2D) of the Income Tax Act.
Tata Motors has announced the following cost allocation ratio:
| Entity (Post-demerger) | Business segment | Allocation of original cost |
|---|---|---|
| Tata Motors Passenger Vehicles (TMPV) | PV, EV, and JLR | 68.85% |
| Tata Motors Commercial Vehicles (TMLCV) | Trucks, buses, and CV operations | 31.15% |
| Total original cost | 100.00% |
This split tells you how much of your original Tata Motors cost now belongs to each company.
Let’s break it down with an example.
How to calculate capital gains after the demerger?
Let’s say you held 100 Tata Motors shares before the demerger, purchased for a total of ₹1,00,000.
With a 1:1 demerger ratio, you will now hold:
- 100 shares of TMPV
- 100 shares of TMLCV
Now, we need to split your original purchase cost between these two companies.
| Entity | Allocation of original cost | Calculation | Shares held | Cost per share |
|---|---|---|---|---|
| TMPV | 68.85% | ₹1,00,000 × 68.85% = ₹68,850 | 100 | ₹68,850/100 = ₹688.50 |
| TMLCV | 31.15% | ₹1,00,000 × 31.15% = ₹31,150 | 100 | ₹31,150/100 = ₹311.50 |
| Total | 100.00% | ₹1,00,000 | 200 | ₹1,000 (combined avg) |
So after the demerger:
- Each TMPV share will be valued at ₹688.50
- Each TMLCV share will be valued at ₹311.50
When you sell the shares in the future, these revised costs will be used to compute your capital gains.
Next, here’s how dividends will be taxed after the demerger.
Taxation of dividends
After the demerger, both TMPV and TMLCV will declare dividends separately. So, any dividend you receive from these companies will be taxed at your slab rate.
If your dividend from a company exceeds ₹10,000 in a financial year (for resident individuals, applicable from FY 2025–26), the company will deduct 10% TDS. You can claim this TDS as a credit while filing your income tax return.
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