Page 37 - Union Budget_2019

Union Budget 2019

SPECIAL PROVISIONS

8.1 Tax on income distributed to shareholder in case of listed companies

Section 115QA provides for the levy of additional income-tax at the rate of 20% of the income distributed

on account of buy-back of unlisted shares. Consequently, the income arising in the hands of shareholders,
on account of buy-back, on which additional tax is paid, is exempted under Section 10(34A)

This section was initially introduced as an anti-abuse provision to curb the practice of unlisted companies
resorting to buy-back of shares instead of distribution of profits, as tax rates on capital gains was lower than

the impact of Dividend Distribution Tax ("DDT"). However, such instances were noticed even in case of
listed companies.

Hence, it is proposed to expand the scope of Section 115QA to include buy-back of shares by companies

listed on recognised stock exchange. Accordingly, exemption under Section 10(34A) is proposed to be
expanded to shareholders of such listed companies.

This amendment will take effect immediately and will accordingly apply to all buy-back of shares by listed
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companies on or after 5 July 2019.
This will eliminate the tax arbitrage enjoyed by the listed companies.

8.2 Provide for pass through of losses in cases of Category I and Category II Alternative Investment
Fund (AIF)

Section 115UB of the Act, inter alia, provides that taxability of income earned by Category I and Category II

AIF, except business income, shall be in the hands of its unit holders and no taxability shall accrue in the
hands of respective AIFs ("pass through"). The business income in the form of fund management fee,
commission, etc. shall taxable at the AIF level.

The "pass through" was provided so that the relief of lower rate of taxation would be available to the unit
holders. But the provisions of Section 115UB does not state about pass through of losses including business

losses and was about to be retained at AIF level to be carried forward and set off.

In order to remove the hardship faced by Category I and II AIFs, it is proposed to amend section 115UB to

provide that:

• Business losses shall be allowed to be carried forward and set-off by the AIF

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