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Tax implication for buyback of shares

23 July 2016

Some equity shares of face value Rs10/-of a unlisted company were issued at a premium of Rs 90/- on 28/2/2013.Now The company is offering buyback to all the shareholders at a net Price of Rs 20/-.What will be the income tax implication in the books of Company offering buyback and the individual/firm/company tendering their shares in the offer.

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CA Saurabh Singh (Practising Chartered ) (974 Points)
Replied 23 July 2016

Hello Deepak,

The Buy back taxability has been explained in Sec 115QA, which states that

Any amount of distributed income by the company on buy-back of shares (not being shares listed on a recognised stock exchange) from a shareholder shall be charged to tax and such company shall be liable to pay additional income-tax at the rate of twenty per cent on the distributed income.

The consideration recived by receipeient on account of buy back is explained sec 46A, which states that:

Where a shareholder or a holder of other specified securities receives any consideration from any company for purchase of its own shares the difference between the cost of acquisition and the value of consideration received by the shareholder shall be deemed to be the capital gains arising to such shareholder in the year in which such shares or other specified securities were purchased by the company.