15 February 2024
Good Day. When a company buyback the unlisted shares, is it required to deduct any tds from the amount payable ? I understand company has to pay tds for buyback but not clear if company is required to deduct any tds while paying to shareholders of such unlisted shares . Please help with the correct position in this regard. Thanks
11 July 2024
When a company conducts a buyback of unlisted shares from its shareholders, the tax implications are as follows:
1. **Tax on Buyback by the Company:** - The company is required to pay a tax known as buyback tax under section 115QA of the Income Tax Act, 1961. As of the latest provisions, this tax is applicable at the rate of 20% (plus applicable surcharge and cess) on the distributed income arising from the buyback of shares.
2. **TDS (Tax Deducted at Source) by the Company:** - As per the Income Tax Act, there is no requirement for the company to deduct TDS from the amount payable to shareholders when conducting a buyback of unlisted shares. The TDS provisions under various sections such as 194A, 194H, 194I, etc., apply to specific types of payments such as interest, commission, rent, etc., but not typically to buyback transactions.
3. **Tax Implication for Shareholders:** - Shareholders who receive consideration from the buyback of shares need to consider the tax implications based on their individual circumstances. The buyback amount received is subject to capital gains tax under section 45 of the Income Tax Act. - The tax treatment for shareholders depends on whether the shares were held as a capital asset or as stock-in-trade, and whether they qualify for any exemptions or deductions under the provisions of the Act.
4. **Compliance Requirements:** - While the company does not need to deduct TDS on buyback payments, it is important for the company and shareholders to comply with all reporting requirements related to the buyback transaction, including filing of appropriate forms and disclosures with the Income Tax Department.
In conclusion, while the company conducting a buyback of unlisted shares is liable to pay buyback tax, there is no requirement under current tax laws for the company to deduct TDS from the amount payable to shareholders for buyback of unlisted shares.
11 July 2024
The company had paid the buyback amount to shareholders and has treated the amount paid as dividend and hence deducted the tds@10% from the payment made. The TDS certificate issued by company also indicates the paid amount as dividend. is it right from tax point of view. ?
CAclubindia
