This year’s Budget was presented by newly elected Finance Minister, Nirmala Sitharaman. This Budget took a much interesting turn, when the Respected Finance Minister proposed Buyback Tax @ 20%.
For a last few years, the companies were diverting the profits by routing it by way of Buy back of their shares. DDT (Dividend Distribution Tax) being the major impact on the Dividends distributed by the company to its shareholders, companies were planning for buy back.
This Budgetary move will prove to be obstruction to those companies who were trying to use Buy Back of shares for avoiding DDT impact on dividend. With the rise of Buy back tax @ 20%, now companies will think over their plans to buy back their shares.
As a shareholder, this is a prima facie win win situation. If the companies think of calling off their buy back plans, it may result into actual dividend distribution. Dividend is exempt in the hands of shareholders (barring a few situations), which means that the shareholder will be on beneficial side of the transaction.
The buy back plans already announced would be in Que for a while since they have already passed the resolution for Buy back and still no Grandfathering clause is announced by the Government. If the government announces Grandfathering to already passed buy back, the companies will have some relaxation.
However, it is to early to comment about any pros or cons, since the after effects are yet to be seen from the perception of stakeholders and stock markets.