CBDT rules for buyback of shares by unlisted cos

The Central Board of Direct Taxes (CBDT), in a bid to check tax avoidance by unlisted companies, on Monday came out with draft rules for ‘distributed income’ from buyback of shares of unlisted companies.

​​Draft rules for prescribing the manner of determination of amount received by the company, in respect of share formulated under section 115QA of the Income Tax Act, 1961, additional Income Tax at the rate of 20% is levied on the distributed income arising out of buyback of unlisted share by the company.

“The Finance Act, 2016, has amended the definition of ‘distributed income’, with effect from June 1 to mean the consideration paid by the company on buyback 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,” a statement by Finance Ministry said.

The tax authorities have invited comments and suggestions on the draft rules by July 31, the ministry said.

According to draft rules “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”.

Where the company had at any time, prior to the buyback 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, the rule said.