Need Tally
for Clients?

Contact Us! Here

  Tally Auditor

License (Renewal)
  Tally Gold

License Renewal

  Tally Silver

License Renewal
  Tally Silver

New Licence
  Tally Gold

New Licence
 
Open DEMAT Account with in 24 Hrs and start investing now!
« Indirect Tax »
Open DEMAT Account in 24 hrs
 How to reduce tax on rent from vacant houses
 Make sure to claim these tax deductions
 Investment tips for those opting for new tax regime
 Indirect tax dept issues notices to companies over late input credit claim under GST frame
 E-generated document required for indirect tax notices
 FinMin seeks industry inputs on direct, indirect tax changes
 Govt gives businesses four months to settle indirect tax disputes
 ITR filing becomes easy via new 'e-Filing Lite' portal - 5 things to know Income Tax Return
 No income tax on interest from accident compensation: High Court
 How much tax do you need to pay for your equity investments?
 Income Tax Department proposes new norms for taxing MNCs in India

New tax on dividend triggers buyback offers
April, 27th 2016

Buybacks are going to be in vogue in 2016 after the Centre slapped a 10 per cent tax on investors earning dividends above ?10 lakh.

After Wipro recently announced a ?2,500-crore buyback, Bharti Airtel, at its upcoming board meeting on Wednesday, is set to consider a buyback.

On Tuesday, the board of Bharti Infratel, the telecom tower arm of Bharti Airtel, approved a ?2,000-crore buyback plan.

G Chokkalingam, Founder, Equinomics Research and Advisory, expects buyback to gain momentum in 2016 as the additional burden of 10 per cent is much more than the 2.5 per cent hike in Dividend Distribution Tax (DDT) in 2007 and introduction of DDT in 2002. Kunj Bansal, ED & CIO — Equity, Centrum Wealth Management, echoes a similar view. “Till the recent Budget, outflows happened from the company and not promoters due to introduction of DDT or even a hike in the same.”

However, he sees that buybacks would happen only in companies with high promoter stakes (say 65-75 per cent) to get maximum output and in cases where the quantum of buyback amounts to substantial share in the total equity.

Fair value factor

Against this, Pankaj Sharma, Head — Research, Equirus Securities, has a contrarian view. “2016 will be definitely a phase of much lower dividend payments by companies but there is no direct correlation between dividend tax and buyback as the ultimate underlying factor is fair value perceived by the promoters and profitability situation of India Inc,” he said.

According to Prime Database, six companies, including Just Dial that have completed buybacks worth ?544 crore in 2016 and buybacks by five companies, including Dr Reddy’s Laboratories worth ?1,676 crore, is ongoing. The total amount of buybacks (announced before the Budget) worth ?2,220 crore till now has already crossed the buybacks in 2015 of ?1,300 crore.

Tax, not the sole reason

However, buybacks are not the result of only the new tax norms introduced by the government or the broader market movement as market mayhem also led to a surge in buyback activity, according to data provided by Prime Database.

For example, buyback activity in terms of amount grew seven-fold in 2006 even as Nifty gained 40 per cent. Hike in dividend distribution tax to 15 per cent from 12.5 per cent in 2007 led to the total buyback amount for the year rising by 49.5 per cent compared to 2006. The benchmark index, Nifty 50 ended up 53 per cent in 2007.

Home | About Us | Terms and Conditions | Contact Us
Copyright 2024 CAinINDIA All Right Reserved.
Designed and Developed by Ritz Consulting