look news india
Mumbai: Finance Minister Nirmala Sitharaman's proposal in the Union Budget is likely to shock promoters who buy back shares of cash-rich companies. The profit earned from the tender of shares i.e. the offer of shares in buyback is now taxed on the beneficiary. Those who currently have no such burden. The company doing the buyback has to effectively pay more than 20 percent as buyback tax. The person giving shares in the buyback will have to pay tax according to how much profit he has made in the short term or long term.
The finance minister has now proposed to tax the amount received by the beneficiary on the buyback of shares. This budget proposal comes four years after the government decided to shift the tax burden from companies receiving dividends to their individual tax slabs. Both dividends and buybacks are a means of returning cash to shareholders.
Some cash-rich companies opt for buybacks instead of dividends, as it benefits their promoters. Capital markets regulator Sebi and experts have pointed out this anomaly, with the buyback tax paid by the company benefiting a handful of shareholders at the expense of others.
The trend of repurchasing shares is high in information technology companies. In December, Tata Consultancy Services completed its Rs 17,000 crore share buyback. In which the promoter Tata Sons offered shares worth Rs 12,284 crore in the tender i.e. buyback. Earlier, Tata Sons had given shares in buyback in 2017, 2021 and 2022. According to which, shares worth five billion dollars i.e. Rs 41,895 crore were bought back in this buyback.
