Buy back of shares- tax impact
This query is : Open
Querist : Anonymous
Querist :
Anonymous
(Querist)
12 February 2013
What is the Tax implication of Buy back of shares on the company as well as on the shareholders. please elaborate.
thanks in anticipation
thanks in anticipation
12 February 2013
1. Purchase by company of its own shares or other specified securities is not a transfer.
2. However as per section 46A. Where a shareholder or a holder of other specified securities receives any consideration from any company for purchase of its own shares or other specified securities held by such shareholder or holder of other specified securities, then, subject to the provisions of section 48, the difference between the cost of acquisition and the value of consideration received by the shareholder or the holder of other specified securities, as the case may be, shall be deemed to be the capital gains arising to such shareholder or the holder of other specified securities, as the case may be, in the year in which such shares or other specified securities were purchased by the company.
3. Form the aforesaid section we may observe that even though buy back of shares by a company is not a transfer neither in the hands of the company nor the share holder, for the purpose of section 46A any gain arising buyback of shares computed in accordance with section 48 (sale consideration less: cost or indexed cost of acquisition) and same shall be deemed as capital gain in the hands of a share holder.
4. In view of the it may be said that any gain arising out of buy back of shares shall be taxable in the hands of share holder. It may be noted that no tax impact on the company.
5. It is interesting to note that, no deductions under sections 54EC & 54F can be claimed against this gain since, in order to claim deduction under sections 54EC & 54F there should be a transfer. As already stated that buyback of share is not a transfer, section 46A is mere a deeming section which brings any gains arising on buyback of shares to capital gains tax.
2. However as per section 46A. Where a shareholder or a holder of other specified securities receives any consideration from any company for purchase of its own shares or other specified securities held by such shareholder or holder of other specified securities, then, subject to the provisions of section 48, the difference between the cost of acquisition and the value of consideration received by the shareholder or the holder of other specified securities, as the case may be, shall be deemed to be the capital gains arising to such shareholder or the holder of other specified securities, as the case may be, in the year in which such shares or other specified securities were purchased by the company.
3. Form the aforesaid section we may observe that even though buy back of shares by a company is not a transfer neither in the hands of the company nor the share holder, for the purpose of section 46A any gain arising buyback of shares computed in accordance with section 48 (sale consideration less: cost or indexed cost of acquisition) and same shall be deemed as capital gain in the hands of a share holder.
4. In view of the it may be said that any gain arising out of buy back of shares shall be taxable in the hands of share holder. It may be noted that no tax impact on the company.
5. It is interesting to note that, no deductions under sections 54EC & 54F can be claimed against this gain since, in order to claim deduction under sections 54EC & 54F there should be a transfer. As already stated that buyback of share is not a transfer, section 46A is mere a deeming section which brings any gains arising on buyback of shares to capital gains tax.
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Querist : Anonymous
Querist :
Anonymous
(Querist)
12 February 2013
what about the recent amendment in section 56. does that affect the transaction?
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