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Tds on buyback of esop shares

Madan Kumar D (Articled Assistant) (31 Points)

31 January 2014

Dear Experts,

My query is with regard to applicability of TDS on buyback of ESOP shares from employees.

Is there any liability on the company while paying to employees on account of buyback of ESOP shares assuming holding period is more than 12 months and same is resulted in capital gain in the hands of employees?

As per my understanding there is explicit provision for TDS.

Appreciate your valuable answers!!!

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Madan Kumar D (Articled Assistant) (31 Points)
Replied 31 January 2014

As per Budget 2013-14 provisions, a new Chapter titled “Chapter XII-DA Special Provisions Relating to Tax on Distributed Income of Domestic Company for Buy-Back of Shares” is inserted. Accordingly, besides the standard corporate income-tax chargeable, an additional income-tax will be charged on any amount of distributed income of unlisted companies. The company implementing the buyback scheme shall be liable to pay the taxes at the rate of 20% on the difference between consideration received by the shareholder on buyback as reduced by the amount received by the ‘company’ for issue of such shares. This will be further increased by a surcharge ( @ 10%) and education cess ( @ 3%) resulting in an effective rate of tax (22.66%).

Income Tax Wala: (Fin. Expert) (Chartered Accountants) (2015 Points)
Replied 31 January 2014

Section 115 QA of income tax Act 1961, applicable from 1st June 2013 (Additional Tax on Shares buyback by a domestic company)

First of all there is not any provision in TDS to deduct TDS on distributed amount.
There is no such provisions in TDS Chepter.
Applicable additional Tax rate is 20% plus surcharge and education cess that comes to 22.66%.
Income arising to shareholders who receive money on buy back shall be exempt u/s 10(34A).
Such additional tax is payable within 14 days of amount paid to shareholder on buyback.
Non payment or short payment of such additional tax than company is require to pay interest @ 1% pm or part of month.
Such shares must not be listed on any stock exchange.

Distributed Income means the consideration paid by the company on buy-back of shares as reduced by money received by the company at the time of issue of these shares.

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