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BUY BACK DISTRIBUTION TAX

Income Tax - Direct Tax Code - DTC - By: - Mr. M. GOVINDARAJAN - Dated:- 2-8-2016 - Introduction Under the Income-tax Act, 1961, dividend distributed by a company is subject to Dividend Distribution Tax under Section 115-O while buy-back of shares is taxable in the hands of shareholders under section 46A. However, when the shareholders were located in jurisdictions where capital gains was exempt, no tax was payable on buy-back of shares. It was found that several companies resorted to this alter .....

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ined in any other provision of this Act, in addition to the income-tax chargeable in respect of its total income for any assessment year, any amount of distributed income by the company on buy-back of shares from a shareholder shall be charged to tax and such company shall be liable to pay additional income-tax at the rate of 20% on the distributed income. Explanation (i) to this section defines the term buy back as purchase by a company of its own shares in accordance with the provisions of any .....

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buted income on buy back of shares. Liability to pay tax Section 115QA(3) provides that the principal officer of the said company and the company shall be liable to pay the tax to the credit of the Central Government within fourteen days from the date of payment of any consideration to the shareholder on buy-back of shares. Section 115QA(5) provides that no deduction under any other provision of this Act shall be allowed to the company or a shareholder in respect of the income which has been cha .....

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or any part of the tax on the distributed income referred to in subsection (1) of section 115QA, within fourteen days, he or it shall be liable to pay simple interest at the rate of 1% for every month or part thereof on the amount of such tax for the period beginning on the date immediately after the last date on which such tax was payable and ending with the date on which the tax is actually paid. Assessee in default Section 115QC provides that if any principal officer of a domestic company an .....

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-17 move to expand the coverage of to wider situations of buy back of shares. The CBDT has now issued draft rules spelling out the manner in which the distributed income be computed for this purpose vide Notification dated 25.07.2016. The CBDT offers the comments of the stakeholders on the draft rules by 31st July 2016 electronically. The draft rules provides the following- Where the share has been issued by a company on its subscription by any person, the paid up amount actually received by the .....

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e of amalgamation, in lieu of the share or shares of an amalgamating company, then, the amount received by the amalgamating company in respect of such share or shares determined in accordance with this rule, shall be deemed to be the amount received by the amalgamated company in respect of the share so issued by it. The amount received by a company, being a resulting company in respect of shares issued by it under a scheme of demerger shall be the amount which bears to the amount received by the .....

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