Share Buyback Taxation in India 2026: Why Buybacks Are Now Taxed Like Dividends

By Nitish Bharadwaj · Published Aug 27, 2026 · 6 min

Since October 1, 2024, share buyback proceeds are no longer tax-free in a shareholder's hands. The company-paid buyback distribution tax under Section 115QA was withdrawn, and the entire amount received is now treated as dividend income under Section 2(22)(f), taxed at the shareholder's slab rate with 10% TDS deducted upfront under Section 194. The original cost of the tendered shares becomes a capital loss instead — but that loss can only offset other capital gains, not the dividend tax itself. This guide walks through the before-and-after math for anyone still tendering shares in buybacks.

For years, tendering shares in a company's buyback was one of the quieter tax-efficient moves available to Indian investors — the company paid a flat tax on the buyback amount, and whatever landed in a shareholder's account arrived completely tax-free. Since October 1, 2024, that arbitrage is gone. Buyback proceeds are now taxed in the shareholder's own hands, at the shareholder's own slab rate, with tax deducted before the money even arrives. Here's exactly what changed, how the new math works, and the capital loss most investors don't realise they're also sitting on.

How Buyback Tax Worked Before October 2024

Under the older regime, a company conducting a buyback paid a Buyback Distribution Tax (BDT) under Section 115QA — a flat rate that worked out to roughly 23.30% (20% plus applicable surcharge and cess) on the difference between the buyback price and the original issue price of the shares. Because the company bore this tax at the entity level, the amount a shareholder actually received was explicitly exempt from tax under Section 10(34A) of the Income Tax Act. For an investor in the 30% slab, this made buybacks meaningfully more attractive than an equivalent dividend, which was taxed directly in the shareholder's hands at their full slab rate.

What Changed From October 1, 2024

The Finance (No. 2) Act, 2024 rewired this mechanism entirely, effective for any buyback undertaken on or after October 1, 2024. Section 115QA no longer applies to buybacks by domestic companies in the way it once did, and the company-paid tax on buyback proceeds is gone. In its place, Section 2(22)(f) now brings the entire amount a shareholder receives on a buyback within the definition of "dividend." That means buyback proceeds are taxed exactly like a dividend payout — added to the shareholder's total income and taxed at their applicable slab rate, with no special concessional rate for the buyback amount itself.

TDS Under Section 194 — Deducted Before You See the Money

Because buyback proceeds are now classified as dividend income, the company deducts TDS at 10% under Section 194 before paying out the buyback amount to resident shareholders, exactly as it would on a regular dividend payout. The TDS threshold that exempts small dividend payouts from this deduction was raised to ₹10,000 per financial year in Budget 2025 — but most buyback amounts, being lump-sum by nature, clear that threshold easily, so the 10% deduction applies in practice to nearly every shareholder tendering meaningful value into a buyback.

The Capital Loss You Also Get — But Can't Use to Offset the Dividend Tax

Here's the part of the new rule that catches even informed investors off guard. Section 46A, which governs the capital gains computation on a buyback, has been amended so that since the entire sale consideration is now taxed as dividend rather than as a capital gain, the shareholder's original cost of acquiring those shares is treated as a capital loss instead. Whether that loss is short-term or long-term follows the normal holding-period rule from the original purchase date — under 12 months for short-term on listed shares, 12 months or more for long-term.

A Worked Example

Say an investor bought listed shares years ago at ₹500 apiece, and tenders them into a buyback today at ₹1,500, past the long-term holding period. The full ₹1,500 is added to income as dividend, taxed at slab rate — roughly 30% plus surcharge and cess at the top bracket. Separately, the ₹500 cost becomes a long-term capital loss, usable only against other capital gains, not against tax already paid on the dividend. Under the pre-October 2024 regime, this same investor would have received the full ₹1,500 tax-free, with the company alone bearing roughly 23.30% BDT on the ₹1,000 spread.

Why This Matters More for High-Slab Investors and Promoters

The tax arbitrage that made buybacks attractive was always strongest for investors in the highest tax brackets — promoters, HNIs, and anyone comfortably above the 20% slab — since they previously captured a buyback's full value at a company-borne rate well below what they'd have paid personally on an equivalent dividend. That gap has now closed entirely; a buyback and a dividend are taxed on effectively the same footing in the shareholder's hands. Companies still get non-tax reasons to prefer buybacks — reducing share count, signaling confidence, avoiding a recurring dividend commitment — but the tax-driven preference that shareholders themselves used to have for buybacks over dividends is gone.

Bottom Line

Since October 1, 2024, a share buyback in India is taxed like a dividend, not like a capital gain — the full proceeds are added to your income at your slab rate, with 10% TDS deducted upfront under Section 194, and the shares' original cost survives only as a capital loss that can offset other capital gains but never the dividend tax itself. If you're deciding whether to tender shares into an open buyback today, run the math on your own slab rate rather than assuming the old tax-free treatment still applies — for anyone in the higher tax brackets, a buyback and a straightforward dividend now cost roughly the same.