An organization mostly buys-back its shares in case they are in excess or market cost of such shares is lower than their genuine worth. At the point when an organization buys-back shares from the investors, the capital gain emerging subsequently is taxable in the hands of the investors aside from if there should be an unlisted organization.
In the case of buy-back of shares by the unlisted organizations, Section 115QA accommodates the levy of extra Income-tax on the organizations at the pace of 20% of the circulated income. Thus, the capital gain emerging in the hands of the investors aren’t charged to impose as tax is collected at the level of the organization.
Section 115QA was presented as an anti abuse arrangement to check the act of unlisted organizations depending on buy-back of shares rather than payment of dividends. This training was noted among unlisted organizations as tax rate for capitals gains was lower than the rate of Dividend Distribution Tax (DDT).
The cases of likewise tax exchange have now come to notice for listed organizations too, whereby the listed organizations are also enjoying such practice with regards to buy-back of shares, rather than payment of dividends. Consequently, so as to control such tax shirking practice received by the listed organizations, the Government has broadened the current anti abuse arrangement of Section 115QA in the case of listed organization also. Therefore, any buy-back of shares from an investor by a listed com-pany will likewise be secured by the arrangement of Section 115QA. Therefore, Section 10(34A) has likewise been corrected to exempt the capital gains emerging in the hands of investors because of buy-back of shares on which extra annual tax has been paid by the organization.
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