If you expected a certain number of Tata Motors shares after the recent merger but found that fewer shares were credited, don’t worry—this is a common situation. The reduction in shares is due to Tax Deducted at Source (TDS) on deemed dividends that are part of the merger process. Let’s break down what happened:

1. Expected Share Allocation

After the merger between Tata Motors and Tata Motors DVR (Differential Voting Rights), the agreed swap ratio was 10 Tata Motors shares for every 7 Tata Motors DVR shares.

For example, if you held 150 Tata Motors DVR shares, you would expect to receive 105 Tata Motors shares after the swap. However, after checking your account, you may have noticed fewer shares credited. Why?

2. Deemed Dividend and TDS Deduction

During the merger, a part of Tata Motors' accumulated profits was considered a deemed dividend. This dividend amount is taxed under the law, and TDS is deducted at 10% on the deemed dividend before your shares are credited.

Let’s assume the deemed dividend per DVR share was ₹180. For your 150 DVR shares, the total deemed dividend would be:

₹180 × 150 = ₹27,000

Tata Motors then deducts 10% TDS on this amount:

₹27,000 × 10% = ₹2,700

To pay this TDS amount, Tata Motors sells a small portion of your new shares, leading to the reduction in the number of shares credited to your account.

3. Why Some Shares Were Sold to Cover TDS

To cover the ₹2,700 TDS, Tata Motors sells a portion of your newly credited shares. Let’s assume Tata Motors shares were trading at ₹900 per share at the time. The company would need to sell about 3 shares to cover the TDS:

₹900 × 3 = ₹2,700

4. Actual Number of Shares Received

Initially, based on the 10:7 share swap ratio, you were expecting to receive 105 Tata Motors shares. After selling 3 shares to cover the TDS, the number of shares finally credited to your demat account would be:

105 shares - 3 shares = 102 shares

5. Excess Funds from Share Sale

If Tata Motors sold fractional shares or the shares were sold at a slightly higher price, any excess funds would be credited to your bank account. Typically, this takes about 45 to 60 days to process.

6. Effect on Share Price

Before the merger, you might have purchased Tata Motors DVR shares at ₹250 per share, making your total investment ₹37,500 for 150 DVR shares. After the merger, you received 105 Tata Motors shares. To calculate your new average share price:

New average price = ₹37,500 ÷ 105 shares = ₹357.14 per share

7. Impact on Taxes When You Sell

When you eventually sell your Tata Motors shares, taxes will apply in two ways:

• Deemed Dividend Tax: The ₹27,000 deemed dividend will be treated as Income from Other Sources in your tax return. Since ₹2,700 TDS has already been deducted by Tata Motors, you can claim this when filing your taxes.
• Capital Gains Tax: If you sell your shares after holding them for more than a year, the profit will be taxed under Long-Term Capital Gains (LTCG). If held for less than a year, the tax falls under Short-Term Capital Gains (STCG). To calculate the capital gain:
  Capital gain per share = ₹1,000 (sale price) - ₹357.14 (average price) = ₹642.86 per share
  For 102 shares, your total capital gain will be:
  102 shares × ₹642.86 = ₹65,571.72

However, since ₹27,000 has already been taxed as deemed dividend, this amount will be deducted from your total capital gain, resulting in an adjusted capital gain of:

₹65,571.72 - ₹27,000 = ₹38,571.72

This adjusted amount will be subject to LTCG tax. If your total LTCG for the year is under ₹1 lakh, you may be eligible for a tax exemption.

Conclusion

Receiving fewer shares after the merger is a result of TDS deductions on deemed dividends. The company sells a portion of your new shares to cover the tax, which is why you see fewer shares credited to your account. However, this process is designed to comply with tax regulations and is aimed at keeping the merger tax-efficient for shareholders. Make sure to claim the TDS while filing your taxes and consult with a tax professional for further clarity.