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ARTICLE · 01 AUGUST 2016

CBDT Issues Draft Rules For Determining Buy-Back Tax

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Under the Income Tax Act 1961, buy back of unlisted shares by a company attracts additional corporate tax in the hands of the company and the resulting capital gains, if any, in the hands of the shareholders are exempt from tax.

IndiaTax
Ritu Shaktawat
Ritu Shaktawat
Shabnam Shaikh
Shabnam Shaikh
Vyoma Mehta
Vyoma Mehta
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Under the Income Tax Act 1961 (IT Act), buy back of unlisted shares by a company attracts additional corporate tax (Buy Back Tax/ BBT) in the hands of the company and the resulting capital gains, if any, in the hands of the shareholders are exempt from tax. The BBT is levied at the rate of 20% (plus applicable surcharge and cess) on the difference between the amount which was received by the company for issue of shares (Amount) and the consideration paid by the company on buy-back of such shares.

The Central Board of Direct Taxes (CBDT) has now issued draft rules1 (Draft Rules) for prescribing the manner of determination of Amount in various scenarios as set out below. The Draft Rules will be finalised after considering comments of the stakeholders and public, and will then be incorporated in the Income Tax Rules, 1962.

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