12 Aug 2019

The government has introduced a slew of tax measures in the union budget 2019 directed at taxing rich individuals and entities. One of these measures was the proposal to levy tax on listed companies when they buy back shares from the shareholders. The imposition of 20% tax on share buyback which was earlier applicable only to unlisted companies drew in a lot of flak and concerns from corporate giants. The stipulation was brought in as an anti-abuse provision to discourage buyback of shares and encourage dividend distribution to shareholders in case of surplus earnings by a companyThere was a feeling that listed companies took to the buy-back route to avoid paying the dividend distribution tax (DDT) pegged at an effective rate of 20.5576%. Therefore, it was deemed essential to plug this loophole that corporates were exploring to evade taxes. However, it is unfair to look at the corporate action of share buyback from such a narrow perspective. Apart from being a tax saving option, buyback also increases earnings per share of the company, avail positive debt-equity ratio and facilitates an exit route to shareholders. On that account, the government needs to issue clarification regarding the applicability of the announcement to existing buyback proposals and other legal implications of the same >>

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