Just out of curiosity, why would a company buy back their own stock??
There are multiple objectives as to why a company would buy back their shares.
- It reduces the number of shareholders of the company and enhances the EPS (Earning per share).
- Helps improve key financial ratios like return on net worth, return on assets etc. over a period of time.
- To the investors it shows the confidence the management has in the business.
We have an article specifically about Buyback Shares. You can read more about it here.
Section 115QA is applicable to listed as well as unlisted companies. Kindly correct your blog
Provisions of section 115QA were initially applicable only to unlisted companies. However, vide the Finance (No. 2) Act, 2019, the provisions of section 115QA are amended and the same is made applicable to the listed companies also.
However, it excludes listed companies whose public announcement has been made before 5th July 2019 and was as per the provisions of SEBI Regulations. Attaching the screenshot of the Section from the Income Tax Act .
if a private company buys back shares from capital the the shareholders suffer any tax as value of their shareholdings increase
Hey @long123bridge ,
If any company buys back shares from capital, it will affect shareholding patterns of company with revised stakes. Share value may increase at time of buy back and if any shares sold or transferred by shareholders will trigger tax implications in hands of company and not investors.
You can read below article of capital gain taxation for more insights:
Hope, it helps!
Hello - I have esops of an unlisted USA company. The company is being acquired by another company now - As part of the sale agreement - The esops stand to be cancelled and a cash compensation paid to holders of esops - will this transaction fall under the purview of 115QA or the compensation paid be considered ordinary income. Is there a precedent available in tax rulings.
Generally, ESOPs of unlisted companies are liable for tax at the time of allotment of shares (under salary head - perquisites) and at the time of sale of shares (capital gain head).
If ESOPs of unlisted company are sold within 24 months then holding period will be treated as short term and if sold beyond 24 months then it will be treated as long term respectively.
Here, in your case when company is acquired by another company and owing to which shares are got cancelled then the said transaction should not be treated as buy back and hence, taxability would not fall under the purview of 115QA of income tax act.
Any amount or consideration received should be treated as capital gain income and you can report under capital gain head in ITR.
Hope, it helps!
Hi @Kaushal_Soni My company’s investor recently aqquired ESOP from employees. Excercise and sell happened on the same day. Company deducted 30% TDS on the entire gain amount. Form16 also shows the full gain amount as Prerequisite tax under Salary Head.
While filing ITR-2, can I reduce prerequisite tax based on (FMV - excercise price) formula and remain (Sell price - FMV) as capital gain?
Also, I have some carry forwarded short term loss from listed shares. Can I adjust this STCG (of Esop) with the loss? Please help
Yes, you can bifurcate your ESOP gain and salary part by applying formula as per income tax act.