Tata Motors split is tax-free but an expert warns of a costly investor mistake

Tata Motors just handed shareholders a 1:1 split in its demerger—but tax expert Sujit Bangar warns many could walk straight into a tax mess if they ignore one critical step.

With Tata Motors now officially split into two separate entities—Tata Motors Ltd (CV Co.) and Tata Motors Passenger Vehicles Ltd (PV Co.)—over 66.5 lakh shareholders have received one share in each company for every Tata Motors share held on October 14.

While the move is tax neutral under Indian law, Bangar, founder of TaxBuddy.com, says investors can’t afford to treat it like a free lunch. “Yes, there is no tax on allotment. But your job starts now,” he posted on LinkedIn. “You must split your original share cost as per the company-declared ratio. This single step determines your capital gains.”

According to the official announcement, shareholders must allocate 31.15 percent of their original Tata Motors purchase cost to CV Co., and the remaining 68.85 percent to PV Co.

Failing to do this, Bangar warns, could lead to incorrect capital gains calculations down the line. “Don’t guess. Use the exact ratio,” he said. “If you sell tomorrow without adjusting costs properly, you could report the wrong gains and face tax issues.”

Bangar also emphasized that the holding period for both new shares remains the same as the original Tata Motors stock. “Even the CV Co. shares are treated as acquired on the original purchase date,” he wrote, highlighting its importance for determining whether gains are taxed as short-term or long-term.