What is Buyback

Companies issue shares to the public and receive money from them for doing their business.

However, sometimes when company has surplus funds, it purchases its own share from the market.  This is called buyback of shares

 

Buy Back of Shares / Securities by Company   - Special Cases

 

Treatment

  • It will be taxable in the hands of shareholders in the year shares public securities are purchased by the companies
  • Amount received from the company will be the Full Value of Consideration
  • This section is applicable only for shares and some specified securities like ESOP (Employee Stock Option plan)

 

Exception

In case of Buyback of Unlisted Shares

BY Domestic Company,

Domestic Company has to pay tax at 20% + 12% surcharge+3% cess(23.072%)

as per Section 115QA

Effective Rate of Additional Income Tax

Particulars Amt
Additional Income Tax 20
Surcharge @12% 2.4
Tax Including Surcharge 22.4
Cess 3% 0.672
Total Amount 23.072

 

In this case,Income of Shareholder is exempt under Section 10(34A) as company had already paid the tax

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  1. Income Tax
  2. Income from Capital Gains
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CA Maninder Singh
CA Maninder Singh is a Chartered Accountant for the past 8 years. He provides GST Training in Delhi. Register now.