Share buy-backs are now in the eye of a storm. The 'gold rush' among companies to announce buy-backs -- Rs 49,000 crore worth of offers were announced in financial year 2018 -- has put these instruments on the radar of the Income-Tax Department and now SEBI. While the income-tax department has sent out notices to some of the large corporate houses seeking capital gains tax on income earned via share buy-back offers, SEBI on Wednesday said it was amending norms with regard to buy-back offers.

SEBI Chairman Ajay Tyagi had last year raised concerns about buy-back offers being more than equity issuance. Experts believe SEBI may amend its buy-back regulations in a manner that would make it easier for the government to tax buy-back offers. Since dividends attract tax, companies have found buy-back offers an efficient method to distribute wealth to its promoters and major investors without tax implications.

Market regulator SEBI allowed buy-back transactions as regular stock market sale purchase deals; these were exempt from capital gains tax from 2015 onwards. Prior to February 2018, long-term capital gains from equity on stock exchanges were tax-exempt. Companies used this tool to give away their surplus cash to investors without any tax implication. But the tax department has concluded that buy-backs through an acquisition window do not count as real trading of shares. Unlike equity trading on an exchange, the buy-back price and the quantity of shares are decided outside the exchange platform.

The tax department reasons that such a scheme or offer cannot be exempt from capital gains tax. It believes that a buy-back is not covered under the definition of “taxable securities transaction” provided in Section 97(13) of Chapter VII of the Finance (No.2) Act 2004. The Act deals with taxation of securities and provides for exemption of certain categories. "Tax on buyback offers is between the income tax department and investors and SEBI has nothing to do with it," the SEBI Chairman said in a press conference.

But experts believe that SEBI has the powers to make further amendments to norms or put its foot down over how it wants buybacks to be treated. SEBI on Wednesday said the board, on the basis of the discussion paper placed before it, approved the proposal of undertaking a public consultation process for reviewing the SEBI (buy-back of securities) Regulations, 1998 and SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 with the objective of simplifying the language, removing redundant provisions and inconsistencies, updating the references to the Companies Act, 2013, other new SEBI Regulations, and incorporating the relevant circulars, FAQs, informal guidance in the regulations, wherever possible.

"Based on a review on these lines, as stated in the discussion paper, it is proposed to re-frame an entirely new set of Buy-back Regulations, 2018, in lieu of the extant 1998 version of the regulations. In respect of the Takeover Regulations, an important amendment proposed is granting additional time for upward revision of open offer price," SEBI said.

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