The buyback tax just shifted to you — Sec 115QA after 1-Oct-2024
For buybacks from 1 April 2026, the Finance Act 2026 taxes shareholders under capital gains again, with an extra tax on promoters (effective 22% for companies, 30% for others). Buybacks from 1 October 2024 to 31 March 2026 were taxed as deemed dividends at slab rate, the share cost becoming a capital loss. Before that, the company paid 23.296%.
The old regime — quick recap
Until 30-September-2024, Sec 115QA imposed buyback tax on the issuing company at 20% + 12% surcharge + 4% cess = 23.296% of the distributed income (buyback price minus the original issue price). The shareholder received the consideration tax-free under Sec 10(34A). For listed-company shareholders, that was a clean trade — the company absorbed the tax, you booked the net.
Off-market open-offer participants and tender-route sellers loved it. So did founder-shareholders cashing partial stakes ahead of an IPO. The arithmetic was simple: the after-tax money in your hand was higher than a comparable dividend payout would have been.
What changed
The FA 2024 amendment swapped the entire architecture. Three things moved at once:
- The taxpayer changed. Sec 115QA company-level tax is gone. The shareholder now pays.
- The taxable amount changed. It is no longer "distributed income" (buyback minus issue price). It is the entire buyback consideration — deemed dividend under Sec 2(22)(f) (newly inserted).
- The character changed. Dividend taxation under Sec 56 — meaning slab rate for residents (up to 39%+ at the top), Sec 195 + DTAA for non-residents.
The cost of acquisition does not vanish. It is treated as a capital loss in the year of the buyback, available to set off against any future capital gain — short-term against any capital gain, long-term against long-term only. Carry-forward is the usual 8 years.
Worked example — listed buyback for a resident HNI
Assume you tendered 10,000 shares of a listed company at ₹1,000 in a buyback. Your cost basis is ₹400 per share (₹40,00,000 aggregate). You are in the 30% slab.
| Component | Pre 1-Oct-2024 | Post 1-Oct-2024 |
|---|---|---|
| Consideration received | ₹1,00,00,000 | ₹1,00,00,000 |
| Company-side Sec 115QA tax @ 23.296% | Company paid (out of buyback funds) | — |
| Shareholder tax | Nil under Sec 10(34A) | Slab — assume effective 30%+4% cess = 31.2% |
| Tax on shareholder | — | ₹31,20,000 |
| Capital loss available | — | ₹40,00,000 (carry-forward 8 years) |
| Net in hand | ~₹76,70,400 (after company tax already deducted) | ₹68,80,000 cash + ₹40L loss bucket |
For high-slab residents, the post-October regime is meaningfully worse on cash. The offsetting capital loss is only useful if you have future gains — and only long-term losses can offset only long-term gains.
What this means for different shareholder types
Resident individuals & HUFs in higher slabs
You are the biggest losers from the shift. A buyback that previously gave you 100% of the company's after-tax distribution now arrives net of your own slab rate. If you are in the 30% / 39% bands, decline tender unless you have a use for the capital loss or the buyback price has a meaningful premium.
Domestic companies as shareholders
Less painful. Domestic corporate shareholders pay at corporate rate (22% / 25% / 30%) on the dividend, and they can avail Sec 80M deduction by re-distributing onward to their own shareholders by the Sec 139(1) due date. The Sec 80M cascade reaches roughly the same net effect as the old Sec 10(34A) regime — provided the re-distribution is genuine and timely.
FPIs & NRIs
Sec 195 + DTAA. Most India treaties cap dividend withholding at 10-15% (US-India 25%, Mauritius 5%, Singapore 10-15%). Pre-October, FPIs benefited from Sec 10(34A). Post-October, they need a TRC + Form 10F to claim treaty rates — and surcharge / cess do not stack on top of treaty rate (settled). Net effect for low-treaty FPIs is usually neutral to slightly better; for FPIs without a treaty, materially worse.
Founder-shareholders ahead of IPO
The most common pre-IPO liquidity event used to be a partial buyback. That toolkit has been rebalanced. Consider:
- Secondary sale to a strategic / financial buyer — taxed as capital gain. LTCG on unlisted shares is 12.5% (post FA 2024); STCG at slab. Usually cheaper than buyback for high-slab founders.
- Reverse-merger / amalgamation — share-swap can defer tax under Sec 47(vii); not always feasible but worth scoping.
- Dividend route with Sec 80M cascade — if the company has accumulated profits and the founder holds via a holding company, the Sec 80M plumbing can replicate the old Sec 10(34A) effect.
Planning angles that still work
- Use the capital loss aggressively. Short-term capital loss can offset both short-term and long-term gains. If you have realised STCG elsewhere in the year (futures & options trading, debt-MF gains), let those eat the loss first.
- Time other gains around the buyback year. The capital loss is freshest in year 1; carry-forward dilutes its real value. If you have a property sale, ESOP exercise or equity-realisation queued, align it to the buyback year.
- Check the tender date. If your offer was filed in September 2024 but completion certificate is October, you are post-shift. Confirm the date stamp.
- DTAA paperwork upfront for NRIs. Don't wait for refund. Submit TRC + Form 10F at the time of remittance — the company will apply the treaty rate if the documentation is in order.
- Avoid Sec 80M leakage. Corporate shareholders must distribute onward by 31-July of next year for Sec 80M. Plan board approvals and dividend declarations on time.
What we recommend at Finclar
For most of our HNI clients, the post-October buyback regime makes declining the tender the default. Unless the company is offering a meaningful premium over the prevailing market price — or you have a sizeable capital-gain liability brewing — the slab-rate hit usually wipes out the benefit.
For founders considering a pre-IPO partial exit, the centre of gravity has shifted to negotiated secondary sales. Treat buyback as one of several tools, not the default one.
For corporates holding equity through a holding structure, the Sec 80M cascade is the closest you'll get to the pre-October parity. Get the timing and the resolutions right.
Related calculators in our toolkit
- Sec 115QA Buyback — pre vs post 1-Oct-2024 comparator with capital-loss carry-forward
- Dividend Sec 194 + Sec 80M — TDS, slab tax, inter-corporate cascade
- Sec 112A LTCG Equity — 12.5% over ₹1.25L exemption for listed equity
- Equity LTCG Harvest — annual ₹1.25L exemption optimisation
- Sec 195 NR Payment TDS — for non-resident shareholders