Section 115QA of the Income Tax Act was introduced in the Finance Act, of 2013, and pertains to the tax on the buyback of shares. The section was introduced to discourage companies from using the buyback of shares as a means of evading tax. In this blog, we will explore the provisions of Section 115QA in more detail.
What is the Buyback of Shares?
The Buyback of shares is a corporate action in which a company buys back its shares from its shareholders. There are various reasons why a company might choose to buy back its shares, including improving financial ratios, consolidation of ownership, reducing surplus cash, or returning value to shareholders.
How is Distributed Income Calculated?
According to Section 115QA, any buyback of shares after 1st June 2013 will attract a tax of 20% on the distributed income arising out of the buyback. The distributed income arising from the buyback is calculated as the difference between the consideration paid by the company for the buyback of shares and the amount at which such shares were originally issued by the company.
Payment of Tax
The tax on distributed income arising from the buyback of shares is to be paid by the company undertaking the buyback within 14 days from the date of distribution of such income. It is important to note that the tax on the buyback of shares is in addition to the capital gains tax that may be levied on the shareholders on the sale of such shares.
Exemptions under Section 115QA
There are certain exemptions available under Section 115QA. If the buyback of shares is undertaken by a listed company by the Securities and Exchange Board of India (SEBI) regulations, then such buyback will not be subject to tax under this section. Similarly, the buyback of shares by a company that is engaged in the business of venture capital or angel funds is also exempted from tax under Section 115QA.
Impact on Companies and Shareholders
The tax on the buyback of shares under Section 115QA can have a significant impact on both the company and the shareholders. Companies will need to carefully consider the tax implications before undertaking a buyback of shares, and shareholders will need to factor in the tax liability when selling their shares.
Read more useful content:
- section 145 of income tax act
- section 10e of income tax act
- section 9 of the income tax act
- section 94b of income tax act
- section 206aa of income tax act
Here are some frequently asked questions about Section 115QA of the Income Tax Act:
What is Section 115QA of the Income Tax Act?
Section 115QA of the Income Tax Act pertains to the tax on the buyback of shares. It was introduced in the Finance Act, of 2013, to discourage companies from using the buyback of shares as a means of evading tax.
What is the tax rate under Section 115QA?
The tax rate under Section 115QA is 20% on the distributed income arising out of the buyback of shares.
How is distributed income calculated under Section 115QA?
Distributed income arising from the buyback of shares is calculated as the difference between the consideration paid by the company for the buyback of shares and the amount at which such shares were originally issued by the company.
Who is liable to pay tax under Section 115QA?
The company undertaking the buyback of shares is liable to pay tax on the distributed income arising out of the buyback.
What is the time limit for payment of tax under Section 115QA?
The tax on distributed income arising from the buyback of shares must be paid by the company within 14 days from the date of distribution of such income.
Are there any exemptions under Section 115QA?
Yes, there are exemptions under Section 115QA. Buyback of shares undertaken by a listed company by the Securities and Exchange Board of India (SEBI) regulations, or buyback of shares by a company engaged in the business of venture capital or angel funds, are exempted from tax under this section.
How does Section 115QA impact, shareholders?
The tax on the buyback of shares under Section 115QA can impact shareholders, as they may be subject to capital gains tax on the sale of such shares in addition to the tax paid by the company on distributed income arising from the buyback.
What should companies consider before undertaking a buyback of shares?
Companies should carefully consider the tax implications under Section 115QA before undertaking a buyback of shares. They should also examine the exemptions available under this section and factor in the potential impact on shareholders.
