From Oct 1, 2024, share buyback taxation shifted from companies to shareholders in India. Learn new tax rules, TDS, capital loss set-off & planning tips for 2025.
Introduction
The taxation of share buybacks in India has undergone a major shift. Earlier, companies bore the tax burden, but from October 1, 2024, the responsibility now lies with shareholders. If you’re an investor participating in buybacks, here’s everything you need to know about the new buyback tax rules in 2025, TDS, capital loss treatment, and planning strategies.
Q1: When did the new tax rules for share buybacks come into effect?
👉 The new rules apply from October 1, 2024. Any buyback conducted on or after this date falls under the updated taxation regime.
Q2: How was it earlier — and what changed now?
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Earlier (Pre-Oct 2024):
📌 Companies paid buyback tax at ~23.3%.
📌 Shareholders received the buyback amount tax-free. -
Now (Post-Oct 2024):
📌 Shareholders pay tax based on their personal income slab.
📌 The company no longer bears the tax liability.
✅ Key Insight: The burden of tax has shifted from companies to you—the shareholder!
Q3: How is buyback income taxed now?
The full buyback amount is treated as dividend income under Section 2(22)(f) of the Income Tax Act.
📈 Example:
If you receive ₹5,00,000 from a buyback, the entire ₹5 lakh is added to your income and taxed as per your slab rate (e.g., 30% if you’re in the highest tax bracket).
Q4: What happened to the tax-free buyback exemption?
Earlier, Section 10(34A) exempted shareholders from tax on buyback proceeds.
❌ This benefit was removed in the 2024 amendment.
Q5: What about TDS on buybacks?
Yes, TDS applies before the payment is made.
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Resident Shareholders: TDS @ 10%
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Non-Resident Shareholders: TDS @ 20% (subject to DTAA benefits)
📌 Example: If you receive ₹1,00,000 from a buyback, you actually get ₹90,000 after TDS (for residents).
Q6: Can I deduct the cost of buying the shares?
❌ No. You cannot reduce the acquisition cost against your buyback income, unlike capital gains.
Q7: What happens to my share acquisition cost?
Your acquisition cost becomes a capital loss.
💡 Example:
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Purchase Cost = ₹2,00,000
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Buyback Proceeds = ₹1,80,000
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Result = ₹2,00,000 treated as capital loss, even though you received ₹1.8 lakh.
This capital loss can be:
✔️ Set off against capital gains
✔️ Carried forward for up to 8 years
Q8: Bottom-line impact on shareholders
✔️ More tax planning required
✔️ Higher-income investors may face increased tax bills
✔️ Buybacks are now taxed like dividends, which may hurt HNIs and retail investors who purchased shares at higher costs.
Final Thoughts & Tax Planning Tips
If you’re a retail or HNI investor, buybacks are no longer tax-free sweet deals. You must:
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Review your income tax slab before tendering shares.
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Plan your capital gains and buybacks strategically.
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Consult a CA or tax advisor to optimize post-tax returns.
📌 Smart Tip: Use capital loss set-off to reduce your future tax liability.
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