Dividend distribution tax on redemption of preference shares at premium


Accounts Manager

A private company planned to redemption of its preference shares issued at premium. Face false of shares Rs. 10/- each. Issued at premium Rs. 5/ each.

The board of directors recommended to redeem at premium of Rs. 10/- each.

As per the income tax act distribution tax should be remitted for the extent of the amount paid to its shareholders more thane received from shareholders.

In the above given situation to how much extent have to paid distribution tax, either Rs. 5/- or 10/-.

 


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Student CA Final

Redemption of Preference Share is nothing but just like Buy Back of Shares. It's treatment would be as per Sec 115QA as follows;

Dividend Distribution Tax (DDT) would be paid as its name suggests on the Distributed income.

Distributed Income =

[Consideration paid for buy back(redemption) - Amount received at the time of Issue of Shares (Including premium)]

Therefore, it must be very clear by Now that DDT would be paid 25-10 = 10 per shares.

Rate = 23.072% [ i.e. 20% main rate + 12% SC (in all cases) + 3% EC ]

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What a Fine Answer Nitesh Sir. ๐Ÿ‘Œ๐Ÿ‘Œ๐Ÿ‘Œ๐Ÿ‘Œ๐Ÿ‘Œ

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Student CA Final

Thank you. n Be Helpful to One Another! ๐Ÿ™‚
 
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Tax Advisor

Very Clear Explanation Nitesh. Your Articles are also amazing. (especially on HUF & on Deductions )

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Student CA Final

Thank you Ms. Anjali ! I appreciate your comment. ๐Ÿ˜Š

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Tax Advisor

@ Nitesh How could I be more in touch with you.??

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Student CA Final

@ Anjali You can follow my blogs @ TAXEFFECTS.BLOGSPOT.COM and also mail me at niteshkbind @ gmail.com to share any ideas, suggestion or query.

Thanks.

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Accounts Manager

Mr. Nitesh, The company issued preference shares @ Rs. 15/- (Face value Rs. 10/- + premium Rs. 5/-) Redemption @ Rs. 20 (face value Rs. 10/- + premium Rs.10/-) Now to what extent DDT have to pay? Consideration paid to shareholders Rs. 20/- each Amount received at time of issue Rs. 15/- My conclusion is DDT have to pay on Rs 5/- each Is it Correct.

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Student CA Final

Yes sir. Absolutely correct. That's what I explained in the previous answer a bit technically.

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