Share Buyback Taxation in India: Deemed Dividend and the 2026 Change

Buybacks from 1 October 2024 to 31 March 2026 (applies to FY 2025-26 returns)

• The Finance (No. 2) Act, 2024 abolished the company-level buyback tax under Section 115QA and inserted Section 2(22)(f): the entire consideration paid on buyback is a deemed dividend in the shareholder's hands.
• It is taxed under income from other sources at your slab rate — no deduction for the cost of the shares is allowed against this income.
• Under amended Section 46A, the sale value of the tendered shares is deemed nil, so your cost of acquisition becomes a capital loss (short or long term based on holding period).
• This capital loss can be set off against other capital gains in the same year and carried forward for 8 assessment years if the ITR is filed by the due date.

TDS on buyback deemed dividend

• Resident shareholders: 10% TDS under Section 194, where total dividend including buyback consideration exceeds Rs 10,000 in the financial year. Without a valid PAN, TDS is 20%.
• Non-residents: TDS under Section 195 at rates in force or the beneficial DTAA rate, with Form 10F and tax residency certificate where claimed.
• The TDS appears in Form 26AS and AIS — claim credit for it in your return.
• Since slab-rate tax usually exceeds the 10% TDS, pay the balance through advance tax instalments to avoid interest under Sections 234B and 234C — estimate it with our income tax calculator.

Buybacks from 1 April 2026: capital gains treatment returns

• For tax year 2026-27 onwards (under the Income Tax Act, 2025 as amended by the Finance Act, 2026), buyback proceeds are taxed under capital gains, not as deemed dividend.
• The gain is the buyback price minus your cost of acquisition. For listed shares held over 12 months, LTCG at 12.5% applies with the Rs 1.25 lakh annual exemption; shorter holdings are short-term.
• Promoter shareholders face an additional levy so that their effective burden is around 30% (individuals/non-corporates) or 22% (domestic companies), per the Budget 2026 announcements.
• Note: this applies based on the date of the buyback, not the year you file. A buyback completed in March 2026 still follows the deemed dividend rules.

Which ITR form should be used?

• ITR-2 for most investors: buyback deemed dividend goes in Schedule OS, and the capital loss in Schedule CG, with quarterly dividend break-up for interest under Section 234C.
• ITR-3 if you also have business income (for example F&O trading).
• ITR-1 is unsuitable once you have capital loss entries to report and carry forward.

Documents to keep ready

• Buyback acceptance/settlement advice from the company or registrar showing shares accepted and the consideration.
• Demat transaction statement and contract notes proving original cost and date of acquisition.
• Form 26AS and AIS showing the dividend amount and 10% TDS — reconcile with our AIS and Form 26AS mismatch guide.
• Capital gains statements for other sales, so the buyback capital loss is set off correctly — see our capital gains tax guide.

Get expert-assisted filing

All India ITR can report your buyback consideration, TDS credit and the matching capital loss in the right schedules, and plan set-offs against your other gains before filing.

File your buyback-year return with an expert

Frequently asked questions

How is a share buyback taxed for shareholders now?

For buybacks between 1 October 2024 and 31 March 2026 (which covers FY 2025-26 returns), the entire buyback amount received is treated as deemed dividend under Section 2(22)(f) and taxed at the shareholder's slab rate under income from other sources. The cost of the shares becomes a capital loss that can be set off against capital gains.

Is TDS deducted on buyback proceeds?

Yes. The company deducts TDS at 10% under Section 194 for resident shareholders, where total dividend (including buyback consideration) in the year exceeds Rs 10,000. For non-residents, TDS applies under Section 195 at rates in force or the applicable DTAA rate.

What changes for buybacks from 1 April 2026?

Under the Income Tax Act, 2025 regime as amended for tax year 2026-27, buyback consideration is taxed as capital gains again — the gain over your cost of acquisition, with listed shares held over 12 months eligible for LTCG at 12.5% above the Rs 1.25 lakh exemption. An additional levy applies to promoter shareholders.

Can I claim the cost of shares bought back as a loss?

For buybacks on or after 1 October 2024 and before 1 April 2026, yes: the sale consideration is deemed nil under Section 46A, so your cost of acquisition becomes a capital loss, which can be set off against other capital gains and carried forward for 8 years if the return is filed on time.

Sources reviewed

• Press Information Bureau – Union Budget 2024-25 highlights (buyback taxable in recipient's hands)
• Press Information Bureau – Union Budget 2026-27 highlights (buyback taxed as capital gains)

This guide is for general understanding. Which regime applies depends on the exact buyback settlement date and your shareholder category, so confirm your position with a tax expert before filing.