# Capital Redemption Reserve (CRR): Computation and Fresh Issue Exemption
## The Core Statutory Rule
Whenever a company buys back its own shares out of free reserves or securities premium, it must transfer to CRR an amount equal to the nominal (face) value of the shares bought back. This protects creditors by ensuring the permanent capital base is not eroded.
## The Formula
```
CRR Required = Nominal Value of Shares Bought Back
− Proceeds from Fresh Issue of Equity / Preference Shares
(issued specifically for the buyback)
```
## The Critical Debenture Exception
> Issue of Debentures does NOT reduce CRR requirement.
Debentures are debt, not equity capital. Issuing debentures does not replace the equity capital base; only new equity or preference shares do. This is one of the most commonly tested rules in this topic.
## Decision Table
| Buyback funded by | CRR Required |
|---|---|
| Free reserves / Sec Prem only | Full nominal value |
| Partly by fresh equity or pref shares | Nominal value − fresh share issue proceeds |
| Entirely by fresh equity or pref shares | Nil |
| Partly by fresh debentures | No deduction — full nominal value still required |
| Partly by debentures AND partly by fresh shares | Deduct only the fresh share proceeds |
## Sources for Creating CRR
Permissible: Revenue Reserves (General Reserve), P&L Account (credit balance)
Not permissible: Securities Premium, Capital Reserve, or any reserve arising from capital profit
## Applying the Same Rule to Preference Redemption
The identical logic applies:
```
CRR for Pref Redemption = Nominal Value of Pref Shares Redeemed
− Proceeds of Fresh Equity / Preference Issue for this purpose
```
If both preference redemption and equity buyback happen in the same year, compute CRR for each separately, then total them.