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capital gain

sapna (article) (90 Points)

07 November 2018

If the preference shares are redeemed by the private limited company, is it taxable in the hands of the shareholder?

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Nitesh bind (Student CA Final ) (12692 Points)
Replied 07 November 2018

Dear Sapna,

There are two aspects of Redemption of Preference share:

1. When the Redemption of Listed Shares are done.

2. When Redemption of Unlisted share are done .

In the first case, When Redemption is done of Listed preference shares then it will be taxable in hands of Shareholders u/s 46A. In that case it will be taken simply just a transfer of capital asset by Shareholder and the gain arises will be added to his income.

Second case which is about Redemption of Unlisted Preference Share ( which I think as your case) THERE WOULD NOT BE ANY TAX LIABILITY IN THE HANDS OF SHAREHOLDER. It will be taxable in hands of Company itself u/s 115QA @ 20+12% SC + 3% Cess i.e. Effectively 23.072%. But Exempt in hands of shareholders.

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