why is govt taxing share buybacks? whats the motive for such a move in budget?
This is well explained in the two sources below:
Basically, the tax burden on investors was disproportionately higher if profits are redistributed by companies as dividends (dividend distribution tax at 20%) versus if they were redistributed as buybacks (taxed at 10% if LTCG applies). Note that effectively, both are ways for companies to redistribute post-tax excess profits to existing investors.
Obviously, given that dividends are distributed using post-tax profits, there is no economic rationale for taxing them in the first place, let alone the question of bringing parity to other forms of redistributing profits. Read more about it here.
@nool @mornington : Dividend is triple taxation . (1) already paid tax on profit . (2) Dividend Distribution Tax which is 20.56% (3) Dividend tax @10 % plus in case total dividend income is 10 lakh or more .
Hence many promoters like EXPLEO solutions etc are on record saying in future , buyback will be the major source to distribute corporate wealth among shareholders but with this new tax on buyback they will be on dilemma.
I am confused .
Is buyback tax free?
Sale of shares in buyback is tax free in the hands of seller. Majesco buyback at 845 per share with record date as 12 November 2020 against market price of 925 means promoters and hnis will participate heavily . total buyback size 74 lakh 70540 shares wherein promoters themselves are intending to offer 75 lakh 40283 shares ! Hni’s too will offer thus it will be oversubscribed . @RLM
If market price is greater than buyback then why should I participate in the buyback ?
R u talking about OFS or buyback ?
(1) you and me may not participate but surely promoters and hnis will offer huge quantity to enjoy sale without tax liability . (2) i am only talking about Buyback that too proportionate styled fixed price buyback .
Government is so short of money that they’re taxing the shit out of every corner possible.
Earlier Dividend was taxable in the hands of shareholder but later it was made taxable to company (Dividend distribution tax ) but now same is taxable in the hands of shareholder.
Buyback gains were taxable in the hands of shareholder but now it is taxed to company (buyback tax) .