Evolution of Buyback Taxation in India: Consolidated year-wise Evolution & Effective Tax Burden Snapshot
Introduction
A company decides to buy back its shares. Simple enough. Now ask, who pays the tax on this transaction? The company or the shareholder? How it is going to be taxed- Capital Gain or Dividend Income?
The answer, unfortunately, depends entirely on which year you are asking the question.
Over the years, Parliament has revisited buyback taxation more times than most of us would like to admit- changing rates, shifting the tax burden and occasionally surprising everyone with a reversal nobody saw coming. Shareholders had their own story. Companies had theirs.
Rather than walk you through all of it in dense paragraphs, the two tables below do the heavy lifting- presenting a clear, year-wise picture of exactly how the tax treatment and rates evolved under the Income Tax Act.
Consolidated Phase-wise Evolution of Buyback Taxation in India
| Period | Applicable Provision | Securities Covered | Taxability in Company’s Hands | Taxability in Shareholder’s Hands | Key Features / Legislative Intent |
| Up to 31.05.2013 | Section 46A | Listed shares, unlisted shares & other securities | No tax on company | Taxable as Capital Gains | Classical regime treating buyback as transfer/ extin-guishment |
| 01.06.2013 – 04.07.2019 | Section 115QA introduced | Unlisted shares only | Company liable to BDT @20% (+SC+cess) | Exempt u/s 10(34A) | Introduced to curb dividend substitution through buybacks |
| 05.07.2019 – 30.09.2024 | Section 115QA expanded | Listed & Unlisted shares | Company liable to BDT (~23.296%) | Exempt u/s 10(34A) | Listed companies also brought within buyback tax net |
| 01.10.2024 -31.03.2026 | Section 2(22)(f) + repeal of 115QA | Listed & Unlisted shares | No company-level buyback tax | Taxable as deemed dividend + separate capital loss | Buyback amount received taxed in shareholder hands u/s 2(22)(f) & COA allowed as Capital loss |
| Income Tax Act, 2025 | Income-tax Act, 2025 (Section 196/ 197/ 198) |
Listed & Unlisted shares | No company-level tax | Capital Gains taxation (+ promoter levy) | Back to capital gains regime with additional tax on promoters |
Treatment of securities other than listed and unlisted shares continue to be taxed as Capital Gains under section 46A of the Income Tax Act, 1961 (now section 69 of the Income Tax Act, 2025)
Effective Tax Burden – Chronological Snapshot
| Period | Tax Burden | Nature of Income | Rate of Tax |
| Pre-2013 | Shareholder | Capital Gains Tax | Capital Gains tax rate applicable in relevant years |
| 2013–2019 | Company (Unlisted share Buyback) | Buyback Distribution Tax (BDT) | 20%+12%+4%= 23.296% |
| 2019–2024 | Company (All Domestic Company Buybacks) | Buyback Distribution Tax (BDT) | 20%+12℅+4%=23.296% |
| 2024–2026 | Shareholder | Deemed Dividend u/s 2(22) (f) + Capital Loss | Dividend taxed at slab rate and Capital loss set off and carry forward upto 8 years |
| Income Tax Act, 2025 | Shareholder | Capital Gains + Additional Promoter Levy ( if applicable) | Capital Gain on Non-Promoter Shareholders:
-STCG on listed shares: 20% -STCG on unlisted shares: Slab rate -LTCG on listed/ unlisted shares: 12.5% Capital Gain on Promoter Shareholders: -Promoter being Domestic company: 22% -Promoter being other than Domestic company: 30% |
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