A Stock redemption is company\'s of one\'s own share either for cash or property

Question

A Stock redemption is company's of one's own share either for cash or property. These stocks are either retired or held as treasury stock.

The tax consequences in hands of shareholder depends on the fact of the after effect on the relative equity interest of a shareholder. If the relative interest remains same , then it is treated as dividend payament ( in so far as it can be paid out of earninga and profit)

howver if there is decrease in the stockholder's equity stake in the corporation then int that case it will either be a capital gain or loss , as if the stock is sold out in the market.

Corporate tax consequence

Corporation has no effect on taxable income if it redeem stocks for cash but if it distributed property , then is must recognise a gain but no losses. it is considered as if a property is sold for the fair market calue to the stock holder.

Can you elaborate on how a shareholder's interest would not remail relatively the same?

Explanation / Answer

When the amount is paid out of profit including capitalised profit then this is treated as payment of dividend in the hands of shareholders then shareholder has to pay tax on such payment received as deemed dividend and at that time shareholder's interest would not remail relatively the same.

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