For any share buyback on or after 1 October 2024, the entire money you receive is treated as a deemed dividend in your hands and taxed at your slab rate, while your full cost of those shares becomes a capital loss. Before that date, the company paid the tax and you usually paid nothing. The Finance (No. 2) Act 2024 has flipped the burden onto the shareholder.
If you are short on time, jump to the worked example below to see exactly how the two-part hit works on real numbers.
For years, an Indian company that bought back its own shares paid a buyback tax of about 20 percent plus surcharge and cess under Section 115QA. The shareholder received the buyback money largely tax-free. The tax was collected once, at the company level.
The Finance (No. 2) Act 2024 ended that system for buybacks on or after 1 October 2024. The company no longer pays Section 115QA tax on these buybacks. Instead, the whole buyback amount you receive is now a “deemed dividend” in your hands under Section 2(22)(f).
That deemed dividend is taxed as Income from Other Sources at your own slab rate. So a shareholder in the 30 percent bracket now carries a far heavier load than under the old flat company-level tax.
| Point | Buyback up to 30 September 2024 | Buyback from 1 October 2024 |
|---|---|---|
| Who pays the tax | The company | The shareholder |
| Head of income for shareholder | Largely not taxed again in your hands | Income from Other Sources |
| Rate on shareholder | Effectively nil | Your slab rate |
| Company-level tax | Section 115QA, about 20 percent plus surcharge and cess | Not applicable |
| Your cost of the shares | Used in capital gains working | Becomes a capital loss; sale value treated as nil |
The change creates a two-part outcome that many shareholders miss.
First, every rupee of the buyback consideration is a deemed dividend taxed at your slab rate. No deduction is allowed against this dividend, except interest under Section 57 within the limit the law sets. You cannot subtract the cost of your shares from this dividend.
Second, your cost of the bought-back shares does not just vanish. Under the proviso to Section 46A, the sale consideration for capital gains is treated as nil. So your entire cost becomes a capital loss.
Here is the trap: that capital loss can be set off only against capital gains under Sections 70 and 74, and carried forward for up to 8 assessment years. It cannot reduce the deemed dividend. If you have no capital gains to absorb it, the loss simply waits.
Kashvi Pathak holds 1,000 shares she bought at Rs 200 each, a total cost of Rs 2,00,000. In November 2024 the company runs a buyback and accepts her shares at Rs 350 each. She receives Rs 3,50,000.
Because the buyback is after 1 October 2024, the full Rs 3,50,000 is a deemed dividend under Section 2(22)(f). It is taxed as Income from Other Sources at her slab rate. If she is in the 30 percent bracket, the tax on this dividend alone is about Rs 1,05,000 plus cess.
Her cost of Rs 2,00,000 is not deducted from that dividend. Instead, the sale value is treated as nil under the proviso to Section 46A, so the whole Rs 2,00,000 becomes a capital loss.
If Kashvi has long-term capital gains from selling other shares or property in the same year, she can set this loss against those gains. If she has no capital gains, the Rs 2,00,000 loss carries forward for up to 8 years until she does.
The company also deducts TDS at 10 percent under Section 194 before paying her, since she is a resident and the amount crosses the threshold. That TDS is credited against her final tax when she files.
Reporting this correctly needs two separate schedules in your income tax return.
Keep the company's buyback letter and the broker contract note. They show the consideration, the number of shares, and the TDS deducted, which you may need if the return is questioned.
For the wider law on how the tax statute works and where to read the sections yourself, see the RTI and statute reference. If you also hold employee shares, the rules differ; read our guide on ESOP and RSU perquisite and capital gains tax.
No. For buybacks on or after 1 October 2024, the company-level buyback tax under Section 115QA does not apply. The tax shifts to you, the shareholder, as a deemed dividend taxed at your slab rate under Section 2(22)(f). Section 115QA applies only to buybacks up to 30 September 2024.
No. The full buyback amount is taxed as a deemed dividend with no deduction for your share cost. The only deduction allowed is interest under Section 57, within the limit the law sets. Your cost is instead treated as a separate capital loss under the proviso to Section 46A, taxed under a different head.
It carries forward. The capital loss from a buyback can be set off only against capital gains under Sections 70 and 74. If you have no capital gains this year, you carry the loss forward for up to 8 assessment years and use it against future capital gains.
Yes. For resident shareholders, the company deducts TDS at 10 percent under Section 194 once the amount crosses the threshold. For non-resident shareholders, TDS applies under Section 195 at the rate in the Act or the lower rate under the relevant tax treaty. You claim this TDS credit when you file your return.
Two. Report the deemed dividend in Schedule OS as Income from Other Sources, taxed at your slab rate. Report the capital loss, with sale value treated as nil, in Schedule CG. Reconcile both with your AIS and Form 26AS, and claim the TDS deducted under Section 194 against your total tax.