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Reserves and surplus capitalisation

Nitesh Chordia (Business) (231 Points)

07 December 2011

whether reserves and surplus of a private company be capitalised without having to pay dividend distribution tax or any other taxation ?

eg.. B/S liab. side

Share capital : 100000

Reservesb and surlpus : 3,00,00,000

can this amt of 3crores be capitalised without paying any taxation?

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5 Replies

(Guest)

Allot bonus shares.

CS Ankur Srivastava (Company Secretary & Compliance Officer) (17848 Points)
Replied 07 December 2011

Yes by way of Alloting Bonus Shares.

CS Ankur Srivastava (Company Secretary & Compliance Officer) (17848 Points)
Replied 07 December 2011

Yes by way of Alloting Bonus Shares.

Giridhar S Karandikar (Team Lead) (7543 Points)
Replied 07 December 2011

Please note that tax is only on the profits of the company. The balance to the Reserves & Surplus is after providing for taxation, dividends to equity & pref shareholders etc.. Hence by capitalizaing the reserves you cannot say that you are not liable to tax. If the income of the company is taxable then it will be required to pay tax on it. But no tax is required to paid on capitalization of reserves.

If the company has huge amounts of reserves, then in order to bring those reserves in line with the capital employed by the company, the company capitalizes part of its reserves, by issuing bonus shares to the shareholders of the company.