Indian Corporates Seek A Relook At Buyback Tax

Amit Singhania, a partner at Shardul Amarchand Mangaldas, concurred, saying the burden of the buyback tax of an exiting shareholder is borne by the continuing shareholder by way of depletion of reserves. Also, since the tax on buybacks is not borne by shareholders, non-resident shareholders don’t get credit for such taxes in an offshore jurisdiction, he added.

In terms of potential revenue loss, Singhania said it’ll make little difference if the shareholders are in India since the rate of buyback tax and long-term capital gains tax, which is about 23%, is almost the same. But if the shareholders participating in the buyback are non-residents, there will be a loss to the exchequer as the rate of capital gains tax in that case is 10.9%, he explained.

Besides a potential revenue loss, the implementation of the levy when the shareholder is a non-resident is a real hurdle as well.

In case the proposal was to go through, questions will arise on manner of withholding especially where payments are made to non-residents, Ritesh Kumar, partner at JSA, told BQ Prime.

“Practically, it will be very difficult for the listed companies to be able to assert with certainty the quantum of tax to be withheld. Also, the law requires one to obtain tax deduction certificates, which can cause tremendous delays in being able to execute the transaction.”