CBDT notifies Rules for Taxation of Companies while issuing of shares following Buy Back, Demerger, Amalgamation


With an aim to minimize the number of litigation over taxation, the Central Board of Direct Taxes (CBDT) has recently notified the rules for computation of distributed income arising out of issue of shares following buy back, demerger, amalgamation or bonus issue by companies. A new Rule 44B has been introduced by the CBDT which provides for computation of income received by a company in respect of issue of share for computing buy back tax payable.

Till now, no specific methodology has been prescribed for determining the amount received by the company, under different circumstances in which the shares have been issued. The present rules prescribes the method for computation of ‘amount received’ in 12 different scenarios by a company, depending upon the manner of issue of shares — regular issue, amalgamation, demerger, bonus issue, conversion of bond or debenture, sweat equity share issue and share-buyback in demat form.

The final rules further prescribe rules for issuance of equity shares, pursuant to conversion of a firm into company or succession of a sole proprietorship by a company.

The rules take effect from 1st June, 2016.

Read the full text of the Amendment rules below.