Tax on assets of Private Ltd company after liquidation

Tax on assets of Private Ltd company after liquidation

We set up a private limited company in 2010 and we want to wind it up now and distribute the assets to shareholders. There are only two shareholders from our family in above company.

The only asset in the company is post tax profit (reserves) which are parked in mutual funds. Kindly advise the best way forward and what will be the tax implication of the money when it would be distributed to shareholders after winding up.

Or is there a better alternative to winding up ?

Asked 8 years ago in Capital Gains Tax

After paying off all the liabilities, residual amount should be distributed to shareholders.

Vidya Jain

CA, Kolkata

1026 Answers

58 Consultations

Talk to Vidya Jain

1) Would the shareholders be liable to pay any Income tax or Capital Gains on receiving the amount ?

2) Would the company have to pay any Dividend Distribution Tax before handing over the residual amount to share holders ?

Asked 8 years ago

Hello,

The amount will be received against the shares/ investments held by the shareholders in the company. So capital gains shall be applicable on the transaction.

Trust this clarifies your query.

Feel free to call / get back in case of further clarifications.

Thanking You.

Regards,

Rohit R Sharma

BCOM, ACA, LLB-GEN, CERT. FAFP

Rohit R Sharma

CA, Mumbai

2104 Answers

95 Consultations

Talk to Rohit R Sharma

Hi,

Money received by shareholders shall be chargeable to income-tax under the head “Capital gains”, in respect of the money so received or the market value of the other assets on the date of distribution, as reduced by the amount assessed as dividend with in the meaning of sub-clause (c) of clause (22) of section 2 and the sum so arrived at shall be deemed to be the full value of the consideration for the purposes of section 48.

Computation :

Money received + Market value of the asset – Deemed dividend u/s 2(22)(c) = Sale Consideration of the shares in the liquidating company.