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    Question

    As per the recent Union Budget 2026-27, share buybacks

    will now be taxed as capital gains for all shareholders with an aim to curb tax arbitrage. Which of the following is correct regarding buyback of shares as per Companies Act?
    A The Debt-Equity ratio must not exceed 1:1 after the buyback Correct Answer Incorrect Answer
    B The Board of Directors can independently authorize a buyback of up to 25% of the paid-up equity capital and free reserves through a Board Resolution. Correct Answer Incorrect Answer
    C The shares bought back must be held as "Treasury Shares" for future resale Correct Answer Incorrect Answer
    D Transfer a sum equal to the nominal value of the shares purchased to Capital Redemption Reserve Account Correct Answer Incorrect Answer
    E All are correct Correct Answer Incorrect Answer

    Solution

    Section 68(2)(d) of the Companies Act, 2013 mandates that the ratio of the aggregate of secured and unsecured debts owed by the company after buyback is not more than twice the paid-up capital and its free reserves (2:1 ratio).   According to the Act, the Board of Directors can independently authorize a buyback of up to 10% of the paid-up equity capital and free reserves through a Board Resolution. For any buyback above 10% and up to the statutory limit of 25%, a Special Resolution must be passed by the shareholders in a general meeting.   As per Section 69 of Companies Act, 2013, when a company purchases its own shares out of free reserves or securities premium account, the company is required to transfer a sum equal to the nominal value of the shares purchased to Capital Redemption Reserve Account (CRR).

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