• Winding up of private limited company having only Fixed Deposits

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Taxability of proceeds from winding up of private limited company

I incorporated a private limited company in 2012 with Rs one lakh paid up capital and there are just two shareholders me and my son both equally 

The company at present has reserves of Rs 50 lakhs which are invested in Fixed Deposit 

We now wish to voluntarily wind up this private limited company as we need the money for your personal use and are not interested in running the company. There are no other assets except Fixed deposits holdings as above mentioned and no creditors or liabilities and all IT and Roc filings are up to date ....The income which company earns in only the intrest income from Fixed Deposit

Now if this company is winding up what amount of tax we will have to pay on Fixed deposits and what amount of money we will recieve in both of our shareholders account after tax 

The Money which we will receive in our personal account will it be chargeable for income tax also 


Please clarify on above. I would be really grateful to you
Asked 3 months ago in Corporate Tax from Mumbai, Maharashtra

Hi,

 

The company would be liable to pay DDT to the extent of accumulated profits. IT appears that the entire 50 lacs is accumulated profit and company will have to pay DDT @ 17.65%

 

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. It seems that company will pay DDT on the entire amount and hence you need not to pay any tax in personal capacity. There could be a capital loss situation.

Lakshita Bhandari
CA, Mumbai
3056 Answers
139 Consultations

5.0 on 5.0

Since the company will distribute its assets to shareholders on closure of company it will have to pay dividend distribution tax u/s 2(22)(c) @17.65% on accumulated profit.

If there is only reserve amount 50 lakh invested in FD where did share capital amount go?

You need to distribute between accumulated profit and share capital amount in the reserve and pay DDT on accumulated profit.

Since I guess the dividend shareholders will receive will be more than 10 lakh they will also be required to pay tax on same. And on amount received other than dividend will be calculated and taxed under capital gain in their hands, if any.

Hope you find the information helpful if you do please rate it 5 and provide your valuable feedback for my improvement.

Thank you

Naman Maloo
CA, Jaipur
1486 Answers
16 Consultations

5.0 on 5.0

Dear Sir,

 

Hope you are doing well !!

 

Any Domestic company which is declaring/distributing dividend is required to pay DDT at the rate of 15% on the grossed up amount of dividend as mandated under Section 115O. Therefore the effective rate of DDT is 17.65%* on the amount of dividend

 

*This rate excludes surcharge and cess. If percentages of surcharge and cess are also included, the effective rate of DDT would be 20.56%.

 

So,The company would be liable to pay DDT on accumulated profits.

 

Further, Capital gain tax liability will arise on any amount received other than dividend in the hands of shareholders.

 

Thanks & Regards,

Payal Chhajed

Payal Chhajed
CA, Mumbai
2217 Answers
24 Consultations

5.0 on 5.0

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