A one-time exemption could save over Rs 7000 crore ($1 billion) in taxes for Indian companies that announced share buybacks this year, according to Umesh Mehta, head of research at Samco Securities Ltd.
Share buybacks announced before the government introduced a 20 per cent levy on such transactions on July 5 will be exempt, Finance Minister Nirmala Sitharaman said at a press conference on Friday.
In a major fiscal booster, Sitharaman on Friday slashed effective corporate tax to 25.17 per cent inclusive of all cess and surcharges for domestic companies.
Making the announcement, Sitharaman said the new tax rate will be applicable from the current fiscal which began on April 1.
More than 70 companies including software exporters Wipro Ltd. and Infosys Ltd. had announced or completed buybacks totalling 355 billion rupees ($5.2) billion before that date, data compiled by Bloomberg show.
Companies had opted for share buybacks because they thought it was an efficient way to return money to shareholders, according to Ajay Bodke, chief executive officer for fund management services at Prabhudas Lilladher Pvt. “They were blindsided when the tax was brought in, so this exemption can act as a one-time boost,” he said.
(With inputs from PTI)