Studycafe | Jul 6, 2019 |
Buyback Tax Extended to Listed Companies : Tax on income distributed to shareholder in case of listed companies
Section 115QA of the Act provides for the levy of additional Income-tax at the rate of twenty per cent. of the distributed
income on account of buy-back of unlisted shares by the company. As additional income-tax has been levied at the level of company, the consequential income arising in the hands of shareholders has been exempted from tax under clause (34A) of section 10 of the Act.
This section was introduced as an anti-abuse provision to check the practice of unlisted companies resorting to buy-back of shares instead of payment of dividends. This practice of widespread abuse was noted, in the past, amongst unlisted companies where the taxpayers preferred it for tax avoidance, as tax rate for capitals gains was lower than the rate of Dividend Distribution Tax (DDT). However, instances of similar tax arbitrage have now come to notice in case of listed shares as well, whereby the listed companies are also indulging in such practice of resorting to buy-back of shares, instead of payment of dividends.
In order to
curb such tax avoidance practice
adopted by the listed companies, the existing
anti abuse provision under
Section 115QA of the Act, pertaining to buy-back of shares from
shareholders by companies not listed on a recognised stock exchange, is proposed to be extended to
all companies including companies
listed on recognised stock exchange. Thus, any
buy back of shares from a shareholder by a company listed on recognised stock exchange,
on or after 5th July 2019, shall also be covered
by the provision of section 115QA of the Act. Accordingly, it is also
proposed to extend exemption under clause (34A) of section 10 of the Act to
shareholders of the listed company on account of buy-back of shares on which
additional income -tax has been paid by the company.
These amendments will take effect from 5th July, 2019.
Source : Memorandum to Budget
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