Finance (No. 2) Act, 2024 Multiple reading of Section 46A After Finance (No. 2) Act, 2024

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The Tax Publishers Income Tax--Finance (No. 2) Act, 2024 Multiple reading of Section 46A After Finance (No. 2) Act, 2024 Srivatsan Ranganathan The author has dissected the amendment in section 46A in The Finance (No. 2) Act, 2024 in this write up. 1. First notes The Finance (No. 2) Act, 2024 has made sweeping changes in the realm of buyback taxation. The so called 'buyback tax' under section 115QA will no longer be there w.e.f. 1-10-2024. The liability of 'buyback tax' which was in the hands of the Buying back Company and exempt in the hands of the shareholders vide section 10(34A) will no longer hold good. Shareholders will be taxed individually post 1-10-2024. This would apply to buybacks under section 68 of the Companies Act 2013. The 'consideration of the buyback' will be taxed as a 'deemed dividend' under section 2(22)(f) with no expenditure or deduction being allowed on the same in the hands of the shareholders. A clause to this effect was inserted in section 57 courtesy Finance Act, 2024 as deemed dividend is taxable under income from other sources. There is no benefit of restricting the deemed dividend only to accumulated profits and the entire consideration of the buyback will be taxable as a 'deemed dividend'. Section 115QA could tax buyback only buybacks or by Indian corporates be it listed or unlisted entity. The effective tax rate was 23.296%. Section 46A exists in the statute to tax cross border buybacks or buybacks where the buyback is done by an offshore entity and the shareholders are residents or non-residents taxable in India. In case of offshore buyback the consideration less the cost of acquisition would be taxable in the hands of the shareholders and it will continue to remain that way even after Finance (No. 2) Act, 2024 at the rates of the respective shareholders. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers

Income Tax--Finance (No. 2) Act, 2024

Multiple reading of Section 46A After Finance (No. 2) Act, 2024

Srivatsan Ranganathan

The author has dissected the amendment in section 46A in The Finance (No. 2) Act, 2024 in this write up.

1. First notes

The Finance (No. 2) Act, 2024 has made sweeping changes in the realm of buyback taxation. The so called 'buyback tax' under section 115QA will no longer be there w.e.f. 1-10-2024. The liability of 'buyback tax' which was in the hands of the Buying back Company and exempt in the hands of the shareholders vide section 10(34A) will no longer hold good. Shareholders will be taxed individually post 1-10-2024. This would apply to buybacks under section 68 of the Companies Act 2013.

The 'consideration of the buyback' will be taxed as a 'deemed dividend' under section 2(22)(f) with no expenditure or deduction being allowed on the same in the hands of the shareholders. A clause to this effect was inserted in section 57 courtesy Finance Act, 2024 as deemed dividend is taxable under income from other sources.

There is no benefit of restricting the deemed dividend only to accumulated profits and the entire consideration of the buyback will be taxable as a 'deemed dividend'. Section 115QA could tax buyback only buybacks or by Indian corporates be it listed or unlisted entity. The effective tax rate was 23.296%. Section 46A exists in the statute to tax cross border buybacks or buybacks where the buyback is done by an offshore entity and the shareholders are residents or non-residents taxable in India. In case of offshore buyback the consideration less the cost of acquisition would be taxable in the hands of the shareholders and it will continue to remain that way even after Finance (No. 2) Act, 2024 at the rates of the respective shareholders.