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What is Buyback
Companies issue shares to the public and receive money from them for doing their business.
However, sometimes when company has surplus funds, it purchases its own share from the market. This is called buyback of shares
Treatment
- It will be taxable in the hands of shareholders in the year shares public securities are purchased by the companies
- Amount received from the company will be the Full Value of Consideration
- This section is applicable only for shares and some specified securities like ESOP (Employee Stock Option plan)
Exception
In case of Buyback of Unlisted Shares
BY Domestic Company,
Domestic Company has to pay tax at 20% + 12% surcharge+3% cess(23.072%)
as per Section 115QA
Effective Rate of Additional Income Tax
| Particulars | Amt |
| Additional Income Tax | 20 |
| Surcharge @12% | 2.4 |
| Tax Including Surcharge | 22.4 |
| Cess 3% | 0.672 |
| Total Amount | 23.072 |
In this case,Income of Shareholder is exempt under Section 10(34A) as company had already paid the tax
