As the brand new scheme of taxation of buyback will apply solely from Oct 1, corporations could provoke buyback schemes on the earliest, to finish the method by Sept 30.
In accordance with Abhishek Goenka, founding associate, Aeka Advisors: “The change on share buybacks is, sadly, not thought by. Taxing it as dividends with a capital loss advantages bigger traders at the price of smaller ones. Additionally, in lots of circumstances, buybacks are made out of share premium and, to tax such circumstances as dividends, goes in opposition to the scheme of dividend taxation.”
As Puneet Gupta, associate at EY-India, explains, the buyback proceeds will probably be taxable as dividend. Nevertheless, the unique value of shares is handled as a capital loss to be adjusted in opposition to different capital features, both in the identical monetary 12 months or as a setoff over subsequent eight years. “This capital loss will probably be handled as long run or brief time period, relying on the period of holding of the shares earlier than buyback. Shares which are held for greater than a 12 months are handled as a long-term asset and the proposed charge is 12.5%,” says Gupta.
Now, if an investor incurs a long-term capital achieve from any subsequent sale within the open market of the remaining shares or some other belongings, the capital loss on buyback may be set off. “The impression is that the buyback proceeds are at first taxed as dividend as per the slab charge (which for a lot of traders will probably be greater than the long-term capital features tax charge). Second, on sale of the belongings, the loss (on buyback) will probably be accessible for setoff solely in opposition to capital features, that are taxable at a decrease charge. That is an anomaly,” provides Gupta.
