What is the best way to return money to shareholders in present context of Buyback Tax + LTCG and Dividend Distribution Tax + 10% Tax on Dividend in India Stock Market ? Will companies still prefer Buyback with Buyback Tax ? Why did Kaveri Seeds prefer Buyback over Dividend ?
Proportionate styled buyback is the only method by which promoters and HNI’S can sell of huge quantity of personal holding but in % terms the stake hardly get reduced rather in many cases increase a bit. The important thing to note that in buyback serviceable equity of company get reduced be it through open market at different prices or proportionate method at fixed price. @ManoranjanS
Thanks for this…
I was looking for which is most Tax efficient way of sharing Profit with Shareholders?
Do Buybacks still offer anything better compared to Dividends ? Since you mentioned that %holding by Promoters or HNI is going to increase post Buyback.
If i were the promoter , prefer buyback as the better option of sharing corporate wealth among shareholders.
Thanks…
Company Financials for ABC for Dividend
Revenue : 1000cr
Expenditure : 900cr
Profit before Tax : 100 Cr
Profit after Tax : 75cr. (25%)
Decide for Dividend of 30 Cr
DDT 20% including Surcharge: 6cr
Net Cash flow : 39 Cr
Buyback
Company Financials for ABC
Revenue : 1000cr
Expenditure : 900cr
Buyback : 30 Cr
Buyback Tax : 6 Cr
Profit before Tax : 64 Cr
Profit after Tax : 48 Cr
Net Cash flow : +48 Cr
Am I missing anything in calculation ??
Working appear to be perfect . however if any CA on this forum may guide more.
Right now there are 3 buybacks announced ,which are fixed price buyback direct from shareholders and there is good difference between offer price and market price AND PROMOTERS ARE PARTICIPATING .in last 10 years this is is first buyback by NIIT wherein third by Kaveri seeds and fourth by Smartlink holdings.