tax treatment of follwing transaction
This query is : Resolved
25 October 2007
A Pvt. Ltd. Company take a loan from a company. As a financial security Financer subscribe the equity share capital from the finance.
Promoter agree to buy shares at face value of share+ 18% per annum as interest.
After a year promoter buy shares from Financer at the rate of Rs. 118 ( Rs. 100 face value+18 interest).
Now please advice me whether TDS is applicable in this transaction ? . If yes how much extent and who will deduct the T.D.S.
Secondly wht is the tax treatment of above transactions
Promoter agree to buy shares at face value of share+ 18% per annum as interest.
After a year promoter buy shares from Financer at the rate of Rs. 118 ( Rs. 100 face value+18 interest).
Now please advice me whether TDS is applicable in this transaction ? . If yes how much extent and who will deduct the T.D.S.
Secondly wht is the tax treatment of above transactions
25 October 2007
It all depends upon the agreement beteen the parties . The basic issue is this that whether RS 18/- is interest or cost of shares bought back.
If in the agreement there is no mention of interest and only the resale price has been fixed at Rs 118/- after one year ........then it is cost of buy back and no question of interest element and hence no TDS.
But it appears that drafting of your agreement suggest towards payment of interest.........but the issue again is who is paying .......company or promoter .......whether company is going to reimbuese the promoter.
Assuming the company is going to reimburese the promoter .....it is a case of interest paid by the company and TDS is applicable on Rs 18/-
If in the agreement there is no mention of interest and only the resale price has been fixed at Rs 118/- after one year ........then it is cost of buy back and no question of interest element and hence no TDS.
But it appears that drafting of your agreement suggest towards payment of interest.........but the issue again is who is paying .......company or promoter .......whether company is going to reimbuese the promoter.
Assuming the company is going to reimburese the promoter .....it is a case of interest paid by the company and TDS is applicable on Rs 18/-
26 October 2007
Yes the TDS would be applicable on Rs 18 as a premium interest
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