Return of capital

Tax Glossary Definition

Return of capital

A return of capital refers to a payment made by a corporation to its shareholders that is not derived from its earnings or profits, but instead represents a partial return of the shareholders’ original investment in the company. Such distributions reduce the shareholder’s cost basis in the stock rather than being treated as taxable income.

Example: If a company returns ₹10 per share to investors from its paid-in capital instead of profits, the amount is treated as a return of capital and reduces the shareholder’s investment cost in the stock.

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