• Taxability of proceeds from winding up of company

I incorporated a private limited company in 2009 with Rs one lakh paid up capital and there are just two shareholders me and my son

The company at present has reserves of  Rs one crore which are invested in mutual funds

We now wish to voluntarily wind up this company as I am getting old and wish to retire and my son is not interested in running the company. There are no other assets except mutual fund holdings as above and no creditors or liabilities and all IT and Roc filings are up to date 

Now if this company is wound up and I get my share of value of reserves... Will that be treated as long term capital gain or will get added to my income of current year

Please clarify on above. I would be really grateful to you
Asked 4 years ago in Income Tax

Sir

distribution of reserve to shareholders are treated as dividend thus DDT(CDT) Dividend distribution tax is applicable on the same and above a certain limit dividend is also taxable in the hands of receiver, thus no capital gain tax on this transactions

Lalit Bansal
CA, Delhi
756 Answers
59 Consultations

5.0 on 5.0

Hi,

Distribution of assets by the company but on liquidation is not liable to capital gain for the company.

However, shareholder will be liable to pay capital gain tax on the same.

Please feel free to call/ revert in case you need more clarity.

Thanks and regards

Abhishek Dugar

CA CS B.Com

Abhishek Dugar
CA, Mumbai
3576 Answers
183 Consultations

4.8 on 5.0

Hi,

There will be no capital gains for the company. However you will need to pay capital gains tax on the amounts received in the individual capacity.

Regards,

Nikhil.

Nikhil Khanna
CA, Mumbai
1429 Answers
19 Consultations

4.8 on 5.0

Forgot to mention a related point that distribution of assets on liquidation by a company will be deemed to be dividend to the extent it balance of accumulated free reserves and the company will have to pay dividend distribution tax (DDT) on the same.

The amount on which DDT has been paid will be reduced from sale consideration in the hand of shareholders and will reduce capital gain tax.

Please feel free to call/ revert in case you need more clarity.

Thanks and regards

Abhishek Dugar

CA CS B.Com

Abhishek Dugar
CA, Mumbai
3576 Answers
183 Consultations

4.8 on 5.0

Dear Sir,

In respect to the Company

1) Any distribution of assets whether in cash or in kind made by the company on liquidation is deemed as dividend and company needs to pay dividend distribution tax @ 17.304% which should be paid within 14 days of the distribution of assets.

2) Company not liable for capital gain tax as exempted u/s 46.

In respect to the Shareholder

1) Shareholder needs to pay LTCG. Assets received will be deemed as full value of consideration and you can claim deduction of deemed dividend from the full value of consideration.

Thanks

Vivek Kumar Arora
CA, Delhi
4493 Answers
621 Consultations

5.0 on 5.0

.

Nikhil Khanna
CA, Mumbai
1429 Answers
19 Consultations

4.8 on 5.0

The proceeds received in the event of winding up of the company are chargeable under the head "Capital Gains". They will be charged as Long Term/ Short Term based on the date of investment in such shares.

If the amount received is Bank Balance, it will be taxed as reduced by Cost of Acquisition of shares. In case the proceeds are received in the form of Assets, the same shall be taxed as per the fair market value of assets so transferred as on date of such transfer as reduced by Cost of Acquisition of shares.

Regards,

Sunny Thakral
CA, Delhi
224 Answers
8 Consultations

5.0 on 5.0

Hi

The company would not be liable to any capital gain taxes. However, DDT shall apply to the extent of accumulated profits.

The shareholders shall be liable to pay capital gain taxes for the amounts distributed in excess of amounts on which DDT has been paid by the company.

Lakshita Bhandari
CA, Mumbai
5660 Answers
817 Consultations

5.0 on 5.0

Hi,

At the time of winding up of the company, the mutual fund holdings will be realised or transferred to the shareholders. However, in both the cases income from such sale/ transfer shall be taxable under the head long term capital gains in the income tax computation of the company.

Therefore, this will not be taxable in your income tax return or your son's tax return for your respective shares of Assets or mutual funds ,received from the company.

Thanks'

Damini

Damini Agarwal
CA, Bangalore
389 Answers
31 Consultations

5.0 on 5.0

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