New Delhi: A bonanza is in the offing for the stock markets as the Prime Minister's Office (PMO) and the Finance Ministry are working on measures which may include dividend distribution tax (DDT) being scrapped.

In this regard, the Department of Economic Affairs (DEA) and Revenue Department officials in the Finance Ministry have held meetings with PMO officials.

According to analysts, the announcement related to buyback attracting 20 per cent tax to close the loophole on DDT had made investors jittery.

This was a new provision on buybacks introduced in this year's Union Budget by Finance Minister Nirmala Sitharaman. The motive was to clamp down on the strategy of avoiding dividend distribution tax (DDT) through buyback of shares by listed companies. The budget had proposed an additional tax of 20 per cent in case of buyback of shares by listed companies.

This was one of the key reasons for the nervousness in the stock markets post the Budget when they fell heavily. Hundreds of companies who were planning buybacks were stuck in the middle of the new tax regime and since then there has been a lull for new buybacks. This also unnerved investors who used to benefit from surrendering shares to the companies.

According to the Budget provision, as per section 115QA of the Income Tax Act, buyback of unlisted shares attracts additional tax of 20 per cent (plus surcharge and cess) in the hands of the company distributing the income on such buyback. Such income arising in the hands of shareholders is exempt under section 10(34A) of the Act.

However, such provision is not applicable on buyback of listed shares. "It is now proposed that section 115QA of the I-T Act will be amended to include such tax on buyback of listed shares.

Further, section 10(34A) of the Act is consequentially proposed to exempt income received by the shareholders on buyback of listed shares. The proposed amendment will be applicable with effect from 5 July 2019", the Budget provision said.

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Free Press Journal