# Reduction of Share Capital

> A company can reduce its share capital under Section 66 of the Companies Act by special resolution and NCLT confirmation — to cancel lost capital, return surplus capital to shareholders, or exit specific shareholders through selective reduction. Creditors can object. For tax, amounts paid on reduction are treated as dividend to the extent of accumulated profits, and the balance is a capital receipt for computing gains.

Practice: Mergers, Acquisitions & Restructuring — https://www.industax.com/services/mergers-acquisitions/

Capital reduction is useful where buyback limits don't fit — for example writing off accumulated losses against capital or exiting a minority shareholder.

We structure the reduction, prepare the petition with counsel, and plan the shareholder tax.

## Key facts

| Item | Detail |
| --- | --- |
| Provision | Section 66 |
| Approval | Special resolution + NCLT confirmation |
| Creditors | Notice and right to object |
| Tax | Deemed dividend up to accumulated profits |

## Who needs this

- Companies with accumulated losses
- Companies exiting minority shareholders
- Companies returning surplus capital

## What's included

- Structuring
- Petition support
- Tax planning
- Post-order filings

## Documents

- Financial statements
- Shareholding
- Creditor list

## Process

1. **Plan** — Purpose and tax mapped.
2. **Petition** — NCLT filing and hearing.
3. **Implement** — Order filed and register updated.

Work that legally requires a advocate is signed by a partner professional; Indus Tax coordinates it.

## FAQs

### Capital reduction or buyback?

Buybacks are faster and need no tribunal approval but have limits and conditions; capital reduction is more flexible, including selective reduction, but needs NCLT confirmation.

### Can a capital reduction write off losses?

Yes — cancelling paid-up capital that is lost or unrepresented by assets is a common use.

### Does selective reduction need all shareholders' consent?

A special resolution is required, and the tribunal examines fairness to the shareholders affected.

## Official sources

- Ministry of Corporate Affairs: https://www.mca.gov.in/
- incometaxindia.gov.in: https://www.incometaxindia.gov.in/

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Canonical page: https://www.industax.com/services/mergers-acquisitions/capital-reduction
Publisher: Indus Tax — CA-led tax and compliance firm (https://www.industax.com). Contact: info@industax.com, 9059139258.
This is general information, not advice for your specific facts.