Reduction of share capital

Yes redemption leads to reduction in share capital. On redemption compny pay back their amt of share capital by which share capital reduced.

As per section 55, redemption of preference shares does not amount to reduction in share capital, read with section 66 (regards to reduction of share capital).
As per companies act, 2013 now only redeemable preference shares can be issued.
So it's obvious that payment is mandatory thus doesn't cause reduction as per section 66 of companies act, 2013.

Following will not consider as a reduction of share capital:

i. Where a company cancels shares which have not been taken or agreed to be taken. This is not, however, deemed to be a reduction of capital. (Section 61)

ii. Where redeemable preference shares are redeemed in accordance with the provisions of sections 55.

iii. Where any shares are forfeited for non-payment of calls, though the forfeiture as a fact amounts to a reduction of capital.

iv. Where there is a surrender of shares or a gift is made to a company of its own shares. (The gift may be accepted in the name of a nominee of the company).

v. Where the nominal share capital of a company is reduced by cancelling any shares which have not been taken or agreed to be taken by any person.

vi. Where company purchases its own shares in pursuance of the provisions in section 68.

vii. Where a sum of money was received for allotment of shares but that could not be done, paying back that money to the depositor did not require the procedure for reduction of capital even though the money was shown as a part of company's subscribed capital.

Redemption will be done from which Source?
Will it be done from General reserve ot any other reserve is to be created for redemption of Preference Shares 

redemption of preference shares can be done from Free reserves i.e General reserves or p&l