21
Jul

#Buybacktax

In Budget 2019, Finance Minister Nirmala Sitharaman introduced an additional tax of 20 per cent on buyback of equity shares by listed companies. Now share buybacks will no longer remain tax efficient as compared to distributing dividends.

Before Budget 2019

  • There was dividend distribution tax (@ 20.56%) on dividend by the Companies and also tax @ 10% in the hands of shareholders on dividends in case dividends amounts to more than Rs 10 lakh.
  • In respect of Buy back of shares, there was no tax on buy back for companies and for investors only long term capital gain tax @10 was applicable.

 

Reason for introduction of Buy back tax

Considering the above loop hole, companies were preferring for Buy back instead of Dividend. To plug this gap, Finance Minister Nirmala Sitharaman introduced an additional tax of 20 per cent on buyback of equity shares by listed companies