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Apr 06, 2020
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Buybacks: Promoters set to gain big from ‘zero tax’
The stock market crash in March may turn out to be a boon for promoters of many listed companies because there will be ‘zero tax’ outgo if they earn cash via share buyback offers.
Per data from nseinfobase.com, 18 large companies have already announced share buybacks to the tune of Rs. 3,500 crore in February and March. Tax consultants are of the view that many more will take this route to transfer surplus cash on their books to promoters this fiscal year.
Sun Pharma, Emami, Thomas Cook, Motilal Oswal and Praj Industries are among those that have announced share buybacks.
This comes even as the new dividend tax structure kicks in as announced by the finance minister in her Budget speech. There could be a slowdown in dividend payouts as the distribution tax comes in from April, under which promoters will have to pay 43 per cent tax.
For share buybacks, companies incur a tax outgo of 20 per cent. But this is treated as long term capital (LTC) in the hands of those receiving it. Long term capital gains tax is 11.96 per cent, including cess. But these LTC gains are grandfathered in India till 2018.
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