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- The Finance Ministry has said that it will look into the applicability of 20% tax proposed in the 2019-20 Budget on the current share buybacks by listed companies.
- This tax was proposed in the budget to discourage the practice of avoiding Dividend Distribution Tax(DDT) through buybacks by listed companies.
- Dividend Distribution Tax(DDT) is paid by companies who distribute their profits to their shareholders in the form of dividends.
- Buyback of shares refers to the corporate action where a company repurchases its own shares from the existing shareholders.
- During the buyback of shares,the price of shares is usually higher than the market price.Typically,companies that have excess cash with no specific investment or other deployment requirements consider buybacks.
- Further,buying back shares is also a route to make a business look more attractive to investors.By reducing the number of outstanding shares,a company’s earnings per share ratio is automatically increased.
