Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
 
 
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
 
 
 
 
Popular Search: due date for vat payment :: articles on VAT and GST in India :: VAT RATES :: TDS :: ACCOUNTING STANDARD :: empanelment :: ARTICLES ON INPUT TAX CREDIT IN VAT :: VAT Audit :: TAX RATES - GOODS TAXABLE @ 4% :: cpt :: list of goods taxed at 4% :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: ACCOUNTING STANDARDS :: Central Excise rule to resale the machines to a new company :: form 3cd
 
 
Direct Tax »
 GST: Renaming Central Board of Excise and Customs to CBIC may take a while
 CBDT notifies new scrutiny notices with e-facility for taxpayers
 GST is a transformational business process reform. All companies will have to change
 GST Council relaxes return filing rules for July-Aug
 Here's how self-employed individual can file tax return with ITR4
 CBDT mulling new system of jurisdiction-free I-T assessment to curb corruption
 CBDT draft notice on computing tax liability of foreign firms
 CBDT forms task force for jurisdiction-free income tax assessment system
 Aadhaar must for filing returns from July 1: CBDT
 Aadhaar mandatory for filing I-T returns and obtaining new PAN card from July 1: CBDT
 Central Board of Direct Taxes cuts profit margin for safe harbour rules

CBDT comes up with draft rules for share buy-back tax by unlisted cos
July, 26th 2016

Unlisted companies resorting to buyback of shares will soon have clarity on the manner in which the 20 per cent buyback distribution tax (BBDT) needs to be computed on their buyback transactions.

Post the budget 2016-17 move to expand the coverage of BBDT to wider situations of buybacks of shares -- including those shares arising from mergers and bonus issues, the CBDT has now issued draft rules spelling out the manner in which “distributed income” be computed for the purpose of BBDT.

Comments on the draft rules could be sent electronically by July 31, the CBDT said in an official release on Monday.

In the absence of specific guidance, corporates were at a loss on computation of BBDT in situations where shares were issued under non-cash considerations (mergers, bonus issues etc). Now, the draft rules have sought to cover seven scenarios depending on the manner of issue of shares.

Plugging Loopholes

In 2013, the Centre had come up with a provision to subject unlisted companies resorting to buyback of shares to 20 per cent tax on the incomes distributed by them through this route.

This was essentially aimed at curtailing companies from distributing dividends under the garb of buyback of shares.

Under the income tax law, dividends distributed by companies attract dividend distribution tax at the hands of the company. On the other hand, the gains made from buyback are taxable at the hands of the shareholders.

However, when the shareholders were located in jurisdictions such as Mauritius, they were not subject to tax for the buyback transactions. This is because capital gains were exempted in these jurisdictions due to treaty benefits enjoyed by them.

As a tax avoidance mechanism, several companies resorted to buyback of shares instead of distributing dividends. With this alternative route, neither the company nor the shareholders paid any tax.

To plug this loophole, the Centre had through Finance Act 2013 introduced new provisions in income tax law requiring a domestic unlisted company buying back its own shares to pay a tax at the rate of 20 per cent on the "distributed income", popularly known as BBDT.

Experts’ Take

Pranay Bhatia, Partner – Direct Tax, BDO India. said that since June 2013, the Income-tax Act is amended to specifically levy tax on the company buying back its shares.

This is generally not the tax implication as the income usually arises at the hands of shareholders and not the company buying back the shares. This is a Specific Anti-Avoidance Rule (SAAR) and how these provisions will play out after General Anti Avoidance Rules becomes effective from April 2017 is something to look out for, Bhatia said.

Amit Singhania, Partner, Shardul Amarchand Mangaldas & Co, a law firm, said that the draft rules conceptualise seven different circumstances for determination of consideration for issue of shares. The draft rules exhaustively covers the applicable circumstance and should address the concerns of the taxpayers, he said.

However, both the tax experts noted that certain situations such as buyback of shares issued as ESOPs or Sweat Equity need to be addressed.

 
 
Home | About Us | Terms and Conditions | Contact Us
Copyright 2017 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Binarysoft Technologies - Privacy Policy

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions