A Layperson's Look at India's Complicated Tax Rules on Share Buybacks 16Sep2025
(The views expressed here are for information purposes only and should not be construed as a
recommendation or investment advice. While the author is a CFA Charterholder
with nearly 25 years of experience in financial markets, this content
is intended to share general insights and does not constitute financial
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interest in stocks / investments discussed if any.)
Note to Readers: I’m not a tax expert—just a normal person trying to understand the recent changes in how equity buybacks are taxed in India. This post is just for information on the topic, and not meant to be financial or legal advice.
The following is an answer from Perplexity Pro as on 16Sep2025:
Some sources quoted by Perplexity Pro in this regard:
Section 115QA - Taxmann
Infosys Buyback - Moneycontrol
Infosys Buyback - Times of India
Buyback tax reforms
What are the new taxation rules on buy back of equity shares of listed companies in India?
Answer from Perplexity Pro as on 16Sep2025:
The taxation rules for buyback of equity shares by listed companies in India changed significantly from October 1, 2024.
Rules Before October 1, 2024:
Buyback Tax paid by the company: When a listed company bought back its own shares, it paid an additional income tax called the Buy-Back Distribution Tax (BDT), under Section 115QA of the Income Tax Act.
The taxation rules for buyback of equity shares by listed companies in India changed significantly from October 1, 2024.
Rules Before October 1, 2024:
Buyback Tax paid by the company: When a listed company bought back its own shares, it paid an additional income tax called the Buy-Back Distribution Tax (BDT), under Section 115QA of the Income Tax Act.
The effective rate was 23.296% (20% plus surcharge and cess) on the difference between the buyback price and the issue price of shares and shareholders had no tax liability on the income received from buyback
Rules From October 1, 2024 Onwards
Taxable in shareholder’s hands: From October 1, 2024 onwards, the company is no longer liable to pay any buyback tax.
Instead, the entire buyback amount received by the shareholder is treated as “deemed dividend” and taxed as "Income from Other Sources" at the individual's income tax slab rate.
TDS deducted by company: The company deducts TDS at 10% for resident shareholders and 20% for non-residents (subject to double taxation treaty relief) on the entire buyback consideration (buyback proceeds) received from the listed company.
TDS deducted by company: The company deducts TDS at 10% for resident shareholders and 20% for non-residents (subject to double taxation treaty relief) on the entire buyback consideration (buyback proceeds) received from the listed company.
Cost base treatment: The cost of acquisition (purchase price) of the shares cannot be deducted from buyback proceeds. But the cost of acquisition is allowed as a capital loss, which can be set off against other capital gains and carried forward up to eight years.
Higher tax burden possible: Since the full buyback consideration is taxed as income (without cost of acquisition deduction), investors in higher slabs (e.g., 30%) may pay more tax than previously.
Key Points:
Prior to Oct2024: Tax (~23%) paid by company; shareholders exempt.
From Oct 2024 onwards: Taxable as income in the hands of shareholders; TDS applies; cost of acquisition is capital loss for set-off.
Advice: The change makes share buybacks less tax-efficient in India, especially for investors in higher tax brackets.
Example Calculation (Post-October 2024):
Suppose shares bought at Rs 1,000 are bought back at Rs 1,800:
Entire Rs 1,800 taxable as “Income from Other Sources” for the shareholder.
From Oct 2024 onwards: Taxable as income in the hands of shareholders; TDS applies; cost of acquisition is capital loss for set-off.
Advice: The change makes share buybacks less tax-efficient in India, especially for investors in higher tax brackets.
Example Calculation (Post-October 2024):
Suppose shares bought at Rs 1,000 are bought back at Rs 1,800:
Entire Rs 1,800 taxable as “Income from Other Sources” for the shareholder.
TDS 10% (residents) deducted; remainder paid to shareholder.
Rs 1,000 purchase cost is not deductible here but is a capital loss, which can be set off against capital gains in the current financial year or future capital gains.
This is the current framework for taxation on buyback of equity shares of listed companies in India as of 16Sep2025.
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P.S.: As per Sridhar Sivaram of Enam Holdings Ltd, "no grandfathering of cost of acquisition.. so any purchase before 31/1/2018 .. buyback will result in more tax !!"
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References:
Above maze image courtesy: Google Gemini
Tweet thread 02Oct2024 share buyback tax changes
Burden on retail shareholders - tax on share buybacks
Negative impact of Debt Mutual Fund Tax Changes 25Mar2023 -- several changes in dividend tax, previous changes in buyback tax, quixotic changes by PM Modi govt and others
Change in behaviour by corporates after 01Oct2024 due to new changes
Tweet 10Sep2025 on Infosys Buyback
Tweet 16Sep2025 - complicated buyback tax system - Sridhar Sivaram of Enam Holdings Ltd
Two screenshots from above tweet >
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