ACCOUNTING & TAXATION

Section 10(34A) Exemption towards income received by a shareholder on buy back of shares

Provisions of section 10(34A) exempt any income arisen to the shareholder on account of buy back of shares as referred under section 115QA of the Income Tax Act. The exemption provisions of section 10(34A) of the Income Tax Act are explained in the present article.

Understanding the provisions of section 10(34A) of Income Tax Act–

Exemption provisions of section 10(34A) state as under-

• The income arisen to the shareholders on account of buy back of shares by the company is exempted from income tax.
• However, the buyback of shares by the company should have been taxed under section 115QA of the Income Tax Act.

In nut-shell, any income arising to the shareholders due to buy back of shares by the company, as referred to in section 115QA, is exempt from income tax in terms of section 10(34A).

Since section 10(34A) exemption is connected with the provisions of section 115QA, it gets essential to understand the basics of the same, which are explained hereunder.

Basics of provisions of section 115QA of Income Tax Act-

The provisions of section 115QA simply state that the domestic company distributing income by way of buy back of shares are required to pay an additional income tax @20% on such distributed income.

Thus, in order to avoid double taxation, since the tax on buy-back of shares is already paid by the domestic company in terms of section 115QA. The same is exempted in the hands of the shareholders in terms of exemption section 10(34A) of the Income Tax Act.

Amount of exemption available under section 10(34A)–

There is no maximum (upper) limit fixed under the Act. The entire amount of income arising on buy-back of shares is allowed as an exemption to the shareholders only in case the company has paid tax as per provisions of section 115QA.