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I am holding 10,000 shares in a listed company that has made a buy-back offer. The face value was Rs 10 per share but the buy-back price is Rs 1,000. Thus, I will get Rs 1 crore on buy-back. Can you clarify whether there is any tax implication on receipt of this amount or is it exempt?

On the buy-back of shares a listed company will pay tax at 20 per cent on the distributed amount i.e. consideration paid by the listed company less the amount received by it for issue of shares under Section 115 QA of the Income Tax Act. However, the amount received by the shareholder on account of buy-back of shares is exempt in the hands of the shareholder under Section 10 (34A) of the Income Tax Act. As such, there is no tax implication as a shareholder. 

Can Security Transaction Tax (STT) be claimed as deduction while computing long-term capital gain or short-term capital gain under Section 45 of the Income Tax Act?

No, you cannot claim deduction of STT while computing income chargeable under the head capital gain. Proviso to Section 48 of the Income Tax Act specifically does not allow such deduction on account of STT paid.

I own agricultural land which is situated in a very remote area, away from local municipal limits. During the current financial year I have sold this land for a total consideration of Rs 1 crore. Am I liable to pay Capital Gain Tax thereon and if yes then how does one get exemption?

If the agricultural land is situated in any area beyond certain kilometres from the local municipal limits or the cantonment board as defined in Section 2 (14) (iii) of the Income Tax Act, then such agricultural land will not be considered as capital asset and therefore the entire Rs 1 crore is not liable for Capital Gain Tax. However, you have to obtain evidence in the form of documents establishing that the land is situated beyond certain limits. If your land is situated within the municipal limits, the net consideration i.e. Rs 1 crore minus the indexed cost of agricultural land as on April 1, 2001 shall be treated as long-term capital gain chargeable to tax. However, if you invest the entire sale consideration in the purchase of a new house provided you don’t have more than one residential house, the entire capital gain will enjoy exemption. You can also invest in capital gain tax bonds under Section 54 E of the Income Tax Act to the extent of Rs 50 lakhs.

I am the promoter of a closely held company which owns one office premise. During the current financial year the company has sold the premise for a total consideration of Rs 15 crore. However, as per the sale agreement only Rs 10 crore was paid and the balance Rs 5 crore was kept in an escrow account and would be available to the company only on completion of certain formalities. Please let me know what is the amount of sale consideration I have to offer for Capital Gain Tax? Should the amount be Rs 10 crore or Rs 15 crore? Can capital gain be invested so that it enjoys exemption?

The entire sale consideration of Rs 15 crore is to be considered as sale consideration while computing Capital Gain Tax in the hands of the company. Retention of a particular amount cannot take it away from the purview of full consideration received or accrued in favour of the company for computing Capital Gain Tax. The amount kept in the escrow account was retained to cover certain contingencies or formalities which are part of the indemnity clause. Thus, the entire sale consideration has accrued in favour of the company and is to be considered while computing the tax liability. Since the office premise was in the books of the company, I presume that depreciation on this premise has been claimed.

Therefore, by virtue of Section 50 of the Income Tax Act, the entire capital gain becomes short-term capital gain. The company will not be able to claim any indexed cost. However, if the company buys another office premise which forms part of the same block of asset during the current financial year, the purchase cost of the new office premises can be set off against Capital Gain Tax worked out in respect of the premises sold. If the investment in new premises is more than capital gain then the entire capital gain is not subject to tax. However, the company will get depreciation only on the net amount i.e. the amount which is left after setting off capital gain. Thus, company will lose depreciation to that extent but will get exemption of capital gain and can avoid immediate payment of tax.

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