Has anyone studied the tax implications arising out of conversion from DVR to Ordinary shares? As per the detailed email sent by the company the implications cut across 3 categories – deemed dividend, short term capital gains and long term capital gains…please note that all 3 may become applicable as part of conversion journey (without you selling any of the shares).
Biggest cause of worry for me is Deemed Dividend amount of Rs. 194 per share that they have indicated in the sample calculation under annexure 1 of the detailed email. Tax liability on deemed dividend itself can go very high for those in higher tax brackets. And depending on your original cost of acquisition of DVRs and timeline, long term may also kick in. Minor short term capital gains will also kick as company has to deduct TDS. Company will sell TDS amount worth equivalent shares in open market and credit the rest.
As per current calculations it looks like a losing scenario for those retail investors with significant DVR holdings. Not to talk about the additional downside of acquistion date of new shares getting reset to when they are issued (as against original acquisition of date of DVR shares). So selling in next 12 months could attract Short Term gains instead of long term.
Please note whatever I have written above is my understanding of the situation. I can be completely wrong here. Hence want to check with others on the forum who have independently done any study and calculations on tax implications to compare notes and take a decision.
Any inputs will be helpful.
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