Nitesh Chordia (Business) (231 Points)
07 December 2011whether 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?
CS Ankur Srivastava
(Company Secretary & Compliance Officer)
(17853 Points)
Replied 07 December 2011
Yes by way of Alloting Bonus Shares.
CS Ankur Srivastava
(Company Secretary & Compliance Officer)
(17853 Points)
Replied 07 December 2011
Yes by way of Alloting Bonus Shares.
Giridhar S Karandikar
(Team Lead)
(7548 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.
CA Maulik Rachh
(-)
(114 Points)
Replied 13 December 2011
Rgt to issue bonus shares..it just shifts taxation liability.
CAclubindia
