Capital Reduction

If a person receiving amount against capital Reduction after deduction of tax at source u/s 194 (Dividend)

however the person claims that amount as a capital gain and not deemed divided.

please advise in this regard that the amount received is taxable under which head ( Dividend or Capital Gain)!?
Replies (3)
Quick Summary
This discussion explores the tax treatment of amounts received from capital reduction. Specifically, it questions whether such distributions, after tax deduction under Section 194 (Dividend), should be classified as a dividend or a capital gain. The prevailing view, based on Section 2(22) of the Income-tax Act, 1961, is that accumulated profits distributed during capital reduction are considered dividends, even if capitalised. The query also touches upon the implications of considering this under Section 115QA as a gain, contrasting it with the reduction in share face value.

As per section 2(22) of the Income-tax Act, 1961 (Act), any distribution of accumulated profits to the shareholders, whether capitalised or not, pursuant to capital reduction, is considered as dividend.
What Happens if we consider this under section 115QA as Gain!?
Capital gain reduction is not Dividend distribution. Face value of shares go down by reduction in capital.

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