Will buyback tax discourage IT companies' structured buyback programs?
Updated : July 08, 2019 12:44 PM IST
On Friday, finance minister Nirmala Sitharaman proposed to extend the buyback tax at 20 percent to listed companies as well. The step, taken to discourage the practice of avoiding Dividend Distribution Tax (DDT) through buyback of shares by listed companies, came into effect on July 5.
In the past two years, total cash returned to TCS shareholders comprised of 60 percent of share buyback and 40 percent of dividend payment. Wipro, on the other hand, has largely used buybacks - 90 percent of the payout in the past two years, the report said.
Kotak said that the buyback program is done post the tax deduction on the excess cash and the imposition of the new tax on the dividends disbursed is likely to make huge dents in the profit of these companies.