CBDT issues draft rules for taxing buy back of unlisted shares
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The distributed income was defined as the consideration paid by the company on buy back of shares as reduced by the amount which was received by the company for issue of such shares, the draft said.
"The Finance Act, 2016 amended the definition of distributed income, with effect from June 1 to mean the consideration paid by the company on buy back of shares as reduced by the amount, which was received by the company for issue of such shares, determined in the manner as may be prescribed," it said.
The present amendment that will take effect from June 1, seeks to remove the limitations created by the restrictive meaning of buy back under the existing provisions.
The amendment also provides the much needed clarity in the manner of determination of consideration received by the company by promising to frame rules in such determination, experts said.
This amendment to the meaning of buy back as well as computation of distributed income would lead to avoidable disputes, they said.
According to experts, the draft rules once enforced will help in checking tax avoidance by all unlisted domestic companies who resort to buy back of shares instead of payment of dividend.
The tax authorities have invited comments and suggestion on the draft rules by July 31, it said.
The draft rule defines that "where the share has been issued by a company on its subscription by any person, the paid up amount actually received by the company in respect of such share including any amount actually received by way of premium shall be the amount received by the company for issue of the share."
Besides, where the company had at any time, prior to the buy-back of the share, returned any sum out of the amount received in respect of such share the amount as reduced by the sum so returned would be the amount received by the company for issue of the share, it said. #casansaar (Business Standard)
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