Maximum rate of premium on redemption ?

is it specified in the companies act, the maximum amount (%) of premium that can be paid on redemption of debentures ?

Replies (3)

It is not specifed in the Companies Act.

Thanks...

 

Now from the view point of Income tax act :

 

If a Pvt ltd company issues debentures to say, some people directly/indirectly related to the promoters/existing shareholders which are reedemable at a premium of 40% at maturity  after 3 years.(I am trying to say that the company puposely issues debentures which are redeemable at a heavy premium to reduce profit and tax liability)

 

As far as I know premium on redemption of debentures is an allowable expenditure for the purpose of income tax act. Now is there some rule/section undet IT Act which speaks about the maximum premium allowable as expenditure ?

Hello,

Companies Act does not specify the max or min rate of redemption.

However

According to a notification of Government of India issued by Controller of Capital Issue as on 1-1-1987, it is compulsory for all companies to create a Debenture Redemption Reserve up to at least 50% of the amount of debentures issued before the commencement of redemption of debentures. The effect of such a notification is that a Company cannot redeem its debentures purely out of capital or purely out of current profits.

It means the max debenture redemption premium can never exceed current and capital profit

. In your case if redemption is within this limit, no one can stop private company to redeem its debenture even at 100% premium.

For companies redemption will be allowed in income tax but it will become taxable in individual debentureholders hand.

Regards,

Vaibhav

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