Buy-back, 1 October 2024 to 31 March 2026: dividend and a stranded loss

This is Part 2 of a four-Part series on the taxation of a buy-back of shares, following Part 1 on extinguishment, section 115QA and who pays and preceding Part 3 on the Income-tax Act, 2025 and Part 4 on the dividend and capital reduction comparison, the SEBI route and the general anti-avoidance rule; it deals with the window from 1 October 2024 to 31 March 2026, in which the shareholder became the taxable person.

A shareholder tenders 10,000 unlisted shares back to the company in December 2024 and receives Rs 50,00,000. He paid Rs 10,00,000 for them in 2020, so he has made Rs 40,00,000. The amount brought to tax in his hands is Rs 50,00,000. The whole payment is a dividend under section 2(22)(f), charged under “Income from other sources” at his ordinary slab or corporate rate, and not a rupee of the Rs 10,00,000 he paid for the shares is deducted against it. If he borrowed to buy them, the interest is not deducted either.

His cost is not forfeited; it is relocated into a computation where it may do no work at all. The proviso to section 46A deems the value of consideration on the buy-back to be nil, so his computation under that section returns nil less Rs 10,00,000, a capital loss of exactly his cost. That is the loss section 46A produces. The shares are not quoted shares, so section 50CA has to be cleared before the loss is treated as certain, and here it is: that section engages only where the price is less than the fair market value prescribed through rule 11UAA, and the Rs 500 a share he is paid is not less than that figure, so it does not engage. He cannot set it against the dividend, because section 71(3) stops a capital loss crossing into another head. Having held the shares for more than twenty-four months, he can set it only against long-term capital gains, in that year or in the eight assessment years that follow. If none arrive, the loss lapses and the cost is relieved nowhere.

That is the regime for a buy-back that took place on or after 1 October 2024 and on or before 31 March 2026. The window is closed but the files are live. The company’s withholding obligation on the gross payment, under section 194 for a resident shareholder and section 195 for a non-resident, falls due before anyone has looked at the shareholder’s own computation, and an eight-year carry forward of a loss first computed for assessment year 2025-26 runs well into the years governed by the Income-tax Act, 2025.

Key points

• This Part states the law for a buy-back that took place on or after 1 October 2024 and on or before 31 March 2026, the window governed by the Income-tax Act, 1961 after the Finance (No. 2) Act, 2024 and before the Income-tax Act, 2025 took effect. For a buy-back in a tax year beginning on or after 1 April 2026 the position is reversed and is in Part 3.
• The 2024 amendment has two halves and both are needed. Clause 3(a) of the Finance (No. 2) Act, 2024 inserted sub-clause (f) into section 2(22) and, in the same clause and with effect from the same date, omitted exclusion (iv) from the long line, the carve-out that had kept a buy-back payment outside “dividend” under the predecessor company-law provision. Citing sub-clause (f) alone understates the change.
• In that window the charge is on the whole consideration. Sub-clause (f) carries none of the accumulated-profits qualifier that limits sub-clauses (a), (b), (d) and (e), Explanation 2 was not extended to it, and the amount the company received on issue of the shares is not deducted because that subtrahend lived in the section 115QA machinery, which the second proviso to section 115QA(1) switches off for a buy-back taking place on or after 1 October 2024. That is the reading of the words this Part takes, and it is argued the other way.
• A buy-back receipt in that window bears the shareholder’s ordinary slab or corporate rate as income from other sources. The concessional capital gains rates in sections 111A and 112A, and the section 112A exemption threshold, have nothing to do with it.
• No deduction survives against it, interest on borrowed money included. Clause 24(a) of the Finance (No. 2) Act, 2024 carved this species of dividend out of section 57(i) and clause 24(c) added an express prohibition; the two limbs do different work, and the interest is not rescued in the section 46A computation either.
• Section 46A, read with its proviso, produces a loss and not a gain. With the value of consideration deemed nil for a buy-back in the window, the computation under that section yields a capital loss equal to the cost of acquisition however large the premium, and nothing at all where the shares cost nothing. The section is expressly subject to section 48, which lets in section 50CA. That section substitutes a prescribed fair market value, computed under rule 11UAA of the Income-tax Rules, 1962, as the full value of consideration for the purposes of section 48, but only where a share other than a quoted share is transferred for less than that value, so a buy-back priced at or above the prescribed value is outside it. A premium over cost, or over book value, is not the test: where rule 11UA’s unquoted-equity-share sub-clause supplies the figure, it takes immovable property at stamp duty value and leaves the paid-up equity capital and reserves and surplus, other than those set apart towards depreciation, out of the liabilities it deducts, so a profitable buy-back can still be an undervalue; on an unlisted share that is not an equity share the measure is a different one again, an open market price. Two other things take a buy-back out of the section whatever the price: a shareholder of a class, and on conditions, prescribed by rule 11UAD, which is the first thing to settle, and shares that were not a capital asset in the shareholder’s hands. On a below-value buy-back the section collides with the proviso, and which deeming prevails is open: the firm’s view is that the proviso governs, because the two deemings are addressed to different provisions and the proviso is addressed to the computation actually in hand, but the fair market value is put on the file either way. That collision is question 12.
• The character of the loss decides whether it is usable, and the shorter holding period is the better tax position. A short-term loss reaches any capital gain of the year under section 70(2); a long-term loss, which is what a promoter or founder will have, reaches only long-term gains under section 70(3), and section 74 carries that asymmetry into each of the eight following assessment years. Section 71(3) forbids setting the loss against the buy-back dividend or against any other head, and because section 74(1) carries it forward only “subject to the other provisions of this Chapter”, the other carry-forward conditions are checked against the return.
• Whether the dividend and the loss can fall in different years is open on the texts. Section 46A fixes its year as the year in which the company purchased the shares, while the dividend follows the ordinary timing rules for income from other sources, so a buy-back in the window completed close to 31 March needs checking.
• Compliance with section 68 of the Companies Act, 2013 is the gateway to the whole regime, and it is open on a file. Sub-clause (f) and the proviso to section 46A are both keyed to it, so a repurchase in the window made otherwise than under section 68 is on the literal words outside both, and the ordinary section 46A computation of actual consideration less cost would supply the figure. What head the receipt then falls under is a second open question, the Revenue’s answer being that with exclusion (iv) omitted the payment is tested under sub-clause (d) instead, and question 6 argues both. The point changes the head of income and not merely the figure, which is why it is taken first.
• For a resident shareholder in the window the deducting provision is section 194 and not section 195, at ten per cent of the whole dividend, because the section enumerates the sub-clauses of section 2(22) it covers and names sub-clause (f) expressly. Its first proviso relieves only an individual, paid by a mode other than cash, within the annual figure it states for the financial year in question, so a company, firm, Hindu undivided family or trust gets no threshold, and nor does an individual paid in cash. For a non-resident, section 195 bites on the whole sum at the rates in force with no threshold, the treaty characterisation of the receipt is settled treaty by treaty and not by the Indian deeming provision, and a default exposes the company under section 201 and to the disallowance under section 40(a)(i).

Regime two: 1 October 2024 and section 2(22)(f)

The Finance (No. 2) Act, 2024 did not simply move a rate. It moved the charge, from the company to the shareholder, and it moved the base with it: what the company paid tax on was the consideration reduced by what it had received for the shares, and what the shareholder pays tax on is the whole of the consideration. From 1 October 2024 the company’s own charge is switched off and the whole of the buy-back consideration becomes a dividend in the shareholder’s hands. The new limb is section 2(22)(f), and it reads:

2[(f) any payment by a company on purchase of its own shares from a shareholder in accordance with the provisions of section 68 of the Companies Act, 2013 (18 of 2013);]

The amending words, from clause 3(a) of the Finance (No. 2) Act, 2024 (Act No. 15 of 2024, assent 16 August 2024), are these:

3. In section 2 of the Income-tax Act,–– (a) in clause (22), with effect from the 1st day of October, 2024,–– (I) after sub-clause (e) and before the long line, the following sub-clause shall be inserted, namely:–– “(f) any payment by a company on purchase of its own shares from a shareholder in accordance with the provisions of section 68 of the Companies Act, 2013;”; (II) in the long line, clause (iv) shall be omitted;

Clause 3(a)(II) is the half of the amendment usually left out, and the new clause does not work without it. Until 1 October 2024 the long line of section 2(22), the “but ‘dividend’ does not include” list, carried an express carve-out for a buy-back payment, in these words:

(iv) any payment made by a company on purchase of its own shares from a shareholder in accordance with the provisions of section 77A of the Companies Act, 1956 (1 of 1956);

On the current edition that exclusion is printed as “(iv) 4[***]”. The two amendments are a matched pair. The old architecture put buy-back payments outside “dividend” and taxed the company instead; the new architecture deletes the exclusion and brings the payment in as dividend by sub-clause (f). The exclusion was keyed to section 77A of the Companies Act, 1956, the predecessor of section 68 of the Companies Act, 2013, so had it been left standing the same clause would have carried an inclusive limb for a buy-back under the 2013 Act and an exclusion for the identical payment under the repealed provision, which is an invitation to argue that the exclusion survived the re-enactment and that the specific prevails over the general. Parliament closed that off in the same clause, on the same date, and citing sub-clause (f) alone understates the change.

Once the receipt is dividend, the charge and the head follow from section 56, whose sub-section (1) sweeps in everything not chargeable under heads A to E of section 14 and whose sub-section (2)(i) names dividends expressly:

(1) Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head “Income from other sources”, if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E. (2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, shall be chargeable to income-tax under the head “Income from other sources”, namely :— (i) dividends ;

Three features of the charge follow from the words used, and each of them costs money.

First, the amount charged is the whole payment. Sub-clause (f) is not qualified by the words “to the extent to which the company possesses accumulated profits”, which qualify sub-clauses (a), (b), (d) and (e), and Explanation 2 to section 2(22), which defines accumulated profits for the sub-clauses it names, is not extended to sub-clause (f). A company with no accumulated profits at all, or with a negative reserve, still pays out a full dividend for tax purposes when it buys back shares. That is the reading of the words this Part takes, and question 5 sets out the argument the other way. Nor is the amount the company originally received on issue of those shares deducted; that subtrahend lived in Explanation (ii) to section 115QA read with rule 40BB, both switched off for a buy-back taking place on or after 1 October 2024.

Second, because the receipt is dividend under “Income from other sources”, it bears the shareholder’s ordinary slab or corporate rate. The concessional capital gains rates under sections 111A and 112A have nothing to do with it, and neither does the section 112A exemption threshold.

Third, the cost of the shares is not an allowance against the dividend. Nothing in section 2(22)(f) or section 56 permits it. What happens to the cost is dealt with separately, by section 46A.

The trigger is the next question. Sub-clause (f) carries no date in its own words; it operates because its insertion was given effect from 1 October 2024 by the commencement words of clause 3(a). The other limbs of the 2024 package that carry a date of their own are drafted differently: the proviso to section 10(34A) speaks of a buy-back “on or after the 1st day of October, 2024”, while the second proviso to section 115QA(1) and the new proviso to section 46A both speak of a buy-back “that takes place on or after the 1st day of October, 2024”. The expression “takes place” is not defined in the Act. Where a buy-back was announced, approved or tendered for before 1 October 2024 and completed after it, the point is arguable rather than settled by a bright line, and the drafting difference between these limbs is part of that argument. None of them is an assessment-year trigger, so assessment year 2025-26 straddles both regimes.

The reach of sub-clause (f) is the other. It is keyed to section 68 of the Companies Act, 2013, and a payment on a purchase that does not comply with that section, because one of the section 68 conditions was not met, is not literally within sub-clause (f), and the receipt in the shareholder’s hands falls to be tested under sub-clause (d) and section 2(47) instead. That is a live question on a file, not an answered one, and the same point cuts the other way in section 46A.

Regime two is a closed window. The Income-tax Act, 2025 as enacted carried its own buy-back limb, section 2(40)(f), to the same effect in slightly different words, “any payment by a company on purchase of its own shares from a shareholder as per section 68 of the Companies Act, 2013 (18 of 2013)”, and the Finance Act, 2026 omitted it with effect from 1 April 2026, leaving the slot printed as “(f) 2[***]”. Everything in this section and the four that follow is the law for a buy-back that took place on or after 1 October 2024 and on or before 31 March 2026.

The shareholder’s cost under regime two: section 46A and the artificial capital loss

The 2024 amendments did not delete the shareholder’s cost of acquisition. They moved it into a computation where it can do almost no work. The result is counter-intuitive and has to be followed step by step: the same rupee is a dividend in full under one head of income and nil consideration under another, in the same year, in the same return.

Section 46A was amended by the Finance (No. 2) Act, 2024, and the amendment is a single proviso. Clause 18 of that Act reads:

18. In section 46A of the Income-tax Act, the following proviso shall be inserted before the Explanation, with effect from the 1st day of October, 2024, namely:–– “Provided that where the shareholder receives any consideration of the nature referred to in sub-clause (f) of clause (22) of section 2 from any company, in respect of any buy-back of shares, that takes place on or after the 1st day of October, 2024, then for the purposes of this section, the value of consideration received by the shareholder shall be deemed to be nil.”.

The charging machinery of the section was left intact. One input was changed, and it was changed to zero. The main limb, untouched, reads:

46A. Where a shareholder or a holder of other specified securities receives any consideration from any company for purchase of its own shares or other specified securities held by such shareholder or holder of other specified securities, then, subject to the provisions of section 48, the difference between the cost of acquisition and the value of consideration received by the shareholder or the holder of other specified securities, as the case may be, shall be deemed to be the capital gains arising to such shareholder or the holder of other specified securities, as the case may be, in the year in which such shares or other specified securities were purchased by the company:

Put the proviso into the main limb and the result follows. The value of consideration is nil. The cost of acquisition is the cost at which the shareholder acquired the shares, or the cost section 49 gives him where it applies, the difference being computed subject to the provisions of section 48. The difference the section deems to be capital gains is therefore a negative figure, and what the shareholder computes is a capital loss exactly equal to his cost of acquisition. No gain is computed within section 46A under regime two, however large the premium: the section itself produces a loss, or nothing at all where the shares cost nothing.

The deeming is confined to “for the purposes of this section”. It does not zero the consideration for section 2(22)(f), for section 56, or for withholding. The shareholder is taxed on the gross receipt as dividend and simultaneously treated as having received nothing for the shares. That is not an anomaly in the drafting; it is the design.

Section 50CA: the undervalue of a share other than a quoted share

The confinement of the proviso to its own section cuts both ways: it keeps the nil deeming out of section 2(22)(f) and out of withholding, and it also keeps that deeming out of the comparison section 50CA makes, which is why the price actually paid is what that section measures. What lets section 50CA in is not that confinement but the words in the main limb of section 46A, quoted above, which make the difference it computes subject to the provisions of section 48. Section 50CA reads:

50CA. Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being share of a company other than a quoted share, is less than the fair market value of such share determined in such manner as may be prescribed, the value so determined shall, for the purposes of section 48, be deemed to be the full value of consideration received or accruing as a result of such transfer:

Provided that the provisions of this section shall not apply to any consideration received or accruing as a result of transfer by such class of persons and subject to such conditions as may be prescribed.

Explanation.—For the purposes of this section, “quoted share” means the share quoted on any recognised stock exchange with regularity from time to time, where the quotation of such share is based on current transaction made in the ordinary course of business.

Four things follow from those words before the collision with section 46A is reached at all.

The trigger is an undervalue measured against a prescribed figure, and not a premium. The section engages only where the consideration received is less than the fair market value “determined in such manner as may be prescribed”, and the rule that prescribes it for this section is rule 11UAA of the Income-tax Rules, 1962, which applies the rule 11UA methods with the valuation date being the date of transfer of the shares. The comparison is made share by share, the section speaking of “the fair market value of such share”.

A premium is not the test, and neither is book value. Where the share answers rule 11UA’s expression “unquoted equity shares”, the method is the adjusted net asset value formula of rule 11UA(1)(c)(b). Assets other than those separately provided for go in at book value, reduced by income-tax paid net of any refund claimed and by any amount carried as an asset, including unamortised deferred expenditure, that represents the value of no asset; jewellery and artistic work go in at the open market price shown by a registered valuer’s report; other shares and securities at fair market value determined under rule 11UA itself; immovable property at the value adopted or assessed or assessable by a Government authority for stamp duty. From that total the rule deducts the book value of the liabilities shown in the balance sheet, but it leaves six items out of that deduction, of which the two that matter most in a private company are the paid-up capital in respect of equity shares and reserves and surplus by whatever name called, even if the resulting figure is negative, other than those set apart towards depreciation; the others are undeclared dividends set apart, excess provision for taxation, provisions for unascertained liabilities and contingent liabilities other than arrears of dividends payable on cumulative preference shares. The net figure is then multiplied by the paid-up value of the shares being valued over the total paid-up equity share capital, so that with the paid-up value of a single share as the numerator the result is the figure for one share. So a share bought back at several times what the shareholder paid for it, and above the figure it is carried at in the books, can still be bought back at an undervalue, and a company carrying accumulated losses cannot treat them as a liability. On shares and securities other than equity shares in a company which are not listed in any recognised stock exchange, a preference share of an unlisted company included, the method is a different sub-clause altogether, the price the share would fetch in the open market on the valuation date, which the assessee may support by a report from a merchant banker or an accountant; a submission that attacks the asset-based computation on such a share is answering the wrong sub-clause.

Which of rule 11UA’s sub-clauses supplies the figure is settled on that rule’s own expressions. The Explanation to section 50CA defines “quoted share” “for the purposes of this section”, so it decides whether the section applies and not which sub-clause of the rule answers once it does.

Sanjana Cryogenic was an addition in the company’s hands under section 56(2)(x) of the Income-tax Act, 1961 and not a section 50CA case, so what it supplies is a pricing pattern and nothing else: Rs 40 a share paid, which was also the issue price, against a rule 11UA figure of Rs 595.49 a share adopted by the assessing officer, the Tribunal having held that the valuation controversy did not survive for adjudication and having expressly left open whether that figure was correct under the prescribed methodology. The point for section 50CA is that the comparison is a test to run on the facts, against the rule 11UAA figure, and not a standing qualification on every buy-back of a share other than a quoted share.

A share can be listed and still not be a quoted share. The Explanation requires the share to be quoted on a recognised stock exchange “with regularity from time to time”, and the quotation to be “based on current transaction made in the ordinary course of business”. Regularity and actual current trades are both required, so a thinly traded listed share can be inside section 50CA while its holder assumes that listing puts him outside it. Where this series uses “unquoted share” it is shorthand for a share other than a quoted share on that test, which is not the same thing as an unlisted share.

The shares must be a capital asset in the shareholder’s hands. The section opens on “the transfer by an assessee of a capital asset, being share of a company other than a quoted share”, so a holder in whose hands the shares were not a capital asset is outside it on its own words, whatever the price. Whether the shares were a capital asset in his hands is therefore settled before any value is computed.

A prescribed class is outside the section altogether. The proviso takes out consideration received on a transfer by “such class of persons and subject to such conditions as may be prescribed”, and rule 11UAD of the Income-tax Rules, 1962 is the rule made under it. The enabling words authorise conditions as well as a class, so what the rule prescribes, and whether a given tendering shareholder answers it, is an application of the rule to his facts and not a question of construction. It is the first thing to settle, because relief under the proviso disposes of the matter without reaching the undervalue test, the quoted-share test, the capital-asset test or the collision between section 50CA and the proviso to section 46A.

Which deeming prevails: section 50CA against the proviso to section 46A

Where section 50CA does engage, two deemings point in opposite directions and which prevails is open.

For the Revenue, section 50CA fixes the full value of consideration “for the purposes of section 48”. Section 46A is expressly subject to section 48 and computes the gain by taking the value of consideration received and deducting the cost, while its proviso deems that value nil only for the purposes of section 46A. So the computation is sent into section 48 with the fair market value already fixed there, and what the shareholder returns is not his cost as a loss but the fair market value less his cost, which where that value exceeds his cost is a gain. That is the primary reading. There is a further step available to an assessing officer, and it is not the same argument. If the figure the proviso supplies is treated as what the shareholder has received, then the consideration section 50CA compares with fair market value is itself nil, and the trigger is met on every buy-back of a share other than a quoted share in the window, not only on one priced below value. On that footing the proviso has made the substitution automatic and has defeated itself.

For the assessee there are four answers on the primary reading, and a separate and shorter one to the further step. The further step fails on the confinement: the proviso deems the value nil “for the purposes of this section”, so what it supplies is not the consideration “received or accruing as a result of the transfer” that section 50CA measures, which is the price the company actually paid. That is why the comparison is run on the actual price.

On the primary reading the answers are these. First, the proviso is the later provision and the more specific, inserted with effect from 1 October 2024 and directed at a buy-back alone, while section 50CA was already on the statute book well before that date, its valuation rule having been made in 2017. Second, the two provisions do not fix the same expression. Section 46A computes on “the value of consideration received by the shareholder”, and that is what the proviso deems nil. Section 50CA fixes “the full value of consideration received or accruing as a result of such transfer”, and fixes it for the purposes of section 48. Nothing in section 50CA speaks to the expression section 46A uses. Third, the whole of the buy-back price has already borne tax as dividend under section 2(22)(f), and the nil deeming is what makes the cost emerge as a loss instead of being set against a receipt already taxed in full; substituting a fair market value into the capital gains computation charges the shareholder a second time on part of that same sum, which is a different thing from the double counting the scheme accepts. Fourth, section 50CA is addressed to “the transfer by an assessee of a capital asset, being share of a company”, and on the reasoning in Globe Capital and Sanjana Cryogenic the share tendered into a buy-back is extinguished under section 68(7) of the Companies Act, 2013 rather than passing to a holder who can enjoy it.

The Revenue answers each of the four. On the first, section 50CA is not the general provision: its own heading is “Special provision for full value of consideration for transfer of share other than quoted share”, so the maxim that a special provision prevails over a general one gives neither side the argument, and what is left is the later-provision point alone. On the second, section 46A directs that the difference be computed subject to the provisions of section 48, so the value of consideration it works with is the one that section works with, and section 50CA has fixed it there; whether being “subject to” section 48 carries that much into section 46A is where the point will be decided. On the third, the double charge is not an oversight: the shareholder is taxed on the gross receipt as dividend and simultaneously treated as having received nothing for the shares, which is the design of the 2024 scheme and not an argument against a provision that operates on the capital gains side. On the fourth, the shareholder’s side of a buy-back is a transfer by him, which is what section 50CA is addressed to, and section 46A itself proceeds on that footing by deeming capital gains to arise to him; the extinguishment reasoning answered a charge on the company’s acquisition of property and does not obviously answer a provision aimed at the transferor. The firm does not put the fourth answer high, for that reason and for the reason Part 3 gives on the same mechanism in section 79 of the 2025 Act, where its view is that the provision is capable of applying and the figure is worked out accordingly.

Where it stands: open, and argued as question 12 below. The firm’s view is that the proviso to section 46A governs the figure section 46A produces, for the second of those reasons: a provision that fixes the full value of consideration for the purposes of section 48 at large is not a direction about the value of consideration received by the shareholder, which is the expression the section actually in hand computes on and the expression the proviso addresses. The firm does not rest on the proviso being the later and more specific provision, because on the Revenue’s primary reading the proviso is not deprived of effect: it still operates on every buy-back priced at or above the prescribed value, on every buy-back of a quoted share, and on every transferor the proviso to section 50CA takes out. On the further step it would be deprived of effect on every buy-back of a share other than a quoted share, and that consequence is one of the answers to the further step rather than an argument on the primary reading. The point is nevertheless pleaded with the prescribed fair market value already on the file, because an assessing officer who takes the Revenue’s reading will compute from it, and the difference is not marginal: a prescribed value above the price reduces the loss, removes it, or turns it into a gain. The substitution mechanism recurs under the Income-tax Act, 2025, where section 79 substitutes a prescribed value for the purposes of section 72 and section 69 computes the buy-back gain expressly subject to section 72; whether it reaches a buy-back at all is question 14 in Part 3. The collision itself does not recur, because the 2025 Act carries no nil-consideration deeming: sub-clause (f) of section 2(40) is omitted with effect from 1 April 2026 and section 69 has no proviso.

A repurchase outside section 68, and securities that are not shares

The deeming is triggered only where the consideration is “of the nature referred to in sub-clause (f) of clause (22) of section 2”. This is the mirror image of the boundary point above. If a repurchase falls outside section 68 of the Companies Act, 2013 and so outside sub-clause (f), the proviso does not apply at all and the ordinary section 46A computation supplies the figure: actual consideration less cost of acquisition. Whether the receipt is then capital gains or is tested as dividend under sub-clause (d) is the second limb of question 6. On that footing the shareholder may be better off, because a real gain taxed at capital gains rates can be a smaller number than the whole receipt taxed as dividend. Whether a transaction is inside or outside section 68 is not a company-law technicality in the shareholder’s hands; it decides the head of income.

The proviso speaks only of a “buy-back of shares”, while section 46A covers “shares or other specified securities” and its Explanation still defines “specified securities” by reference to section 77A of the Companies Act, 1956, a repealed statute, where sub-clause 2(22)(f) refers to section 68 of the Companies Act, 2013. The two limbs are keyed to two different company statutes, so on the words a buy-back of specified securities other than shares is left to the unamended main limb, which produces an ordinary gain or loss on actual consideration. That is the reading this series takes and it is not the only one available. The Revenue’s answer is that sub-clause (f) is keyed to section 68 of the Companies Act, 2013, whose own subject throughout is a purchase by a company of its own shares or other specified securities, so a payment made in accordance with that section in respect of specified securities is still a payment of the nature sub-clause (f) describes; and that a reading which splits one buy-back into two tax regimes creates a gap for no reason. The point is taken up in question 7.

The year in which the loss is returned

The year of the loss is fixed by the main limb as “the year in which such shares or other specified securities were purchased by the company”. That is not the year of payment, not the year of tender, and not the year of the board resolution or the public announcement. Where a buy-back straddles a year end, the dividend and the loss can fall into different years, because the dividend is governed by the ordinary timing rules for income from other sources and the loss by this express rule. Check it on any buy-back completed close to 31 March.

Long term or short term, and why the shorter holding is the better position

The character of the loss is not determined by anything in section 46A. It takes the character of the shares bought back, fixed by the period for which the shareholder held them under section 2(42A). There is no special holding-period rule for buy-back losses. For a buy-back on or after 1 October 2024, necessarily after the substitution of “twenty-four months” for “thirty-six months” by clause 3(b) of the Finance (No. 2) Act, 2024 with effect from 23 July 2024, the position is:

Shares bought back	Long-term if held for	Provision
Shares not listed on a recognised stock exchange in India	more than twenty-four months immediately preceding the date of transfer	s.2(42A), opening portion
Shares listed on a recognised stock exchange in India	more than twelve months	s.2(42A), first proviso, a listed share being a “security” within Explanation 2 read with s.2(h) of the Securities Contracts (Regulation) Act, 1956

The holding period is reckoned “immediately preceding the date of its transfer”, and a buy-back is a transfer: section 2(47) includes “the extinguishment of any rights therein”. Where the shares reached the shareholder in a section 49(1) situation, on amalgamation or demerger, as bonus or rights, or on conversion, the period of holding is extended or reckoned as Explanation 1 to section 2(42A) directs. On the current edition of the Act, “long-term capital asset” is defined in section 2(29AA); section 2(29A) is the definition of “liable to tax”. A submission that cites 2(29A) for the holding-period definition cites the wrong clause.

What the shareholder can actually do with that loss

A capital loss is worth what it can be set against. Worked through for a buy-back loss, the answer is unwelcome, and it turns on three sections, each saying a different thing.

Section 70 governs set-off within the same head, in the same year:

70. (1) Save as otherwise provided in this Act, where the net result for any assessment year in respect of any source falling under any head of income, other than “Capital gains”, is a loss, the assessee shall be entitled to have the amount of such loss set off against his income from any other source under the same head. (2) Where the result of the computation made for any assessment year under sections 48 to 55 in respect of any short-term capital asset is a loss, the assessee shall be entitled to have the amount of such loss set off against the income, if any, as arrived at under a similar computation made for the assessment year in respect of any other capital asset. (3) Where the result of the computation made for any assessment year under sections 48 to 55 in respect of any capital asset (other than a short-term capital asset) is a loss, the assessee shall be entitled to have the amount of such loss set off against the income, if any, as arrived at under a similar computation made for the assessment year in respect of any other capital asset not being a short-term capital asset.

The asymmetry between sub-sections (2) and (3) decides whether a buy-back loss is usable at all. A short-term buy-back loss can be set off against any capital gain of the year, short-term or long-term, because sub-section (2) says “in respect of any other capital asset” without restriction. A long-term buy-back loss can be set off only against long-term capital gains, because sub-section (3) restricts it to “any other capital asset not being a short-term capital asset”. For a promoter or a founder, who will almost always have held the shares for years, the loss manufactured by the section 46A proviso is a long-term loss and so the less useful of the two. A shareholder who held for twenty-four months or less gets a short-term loss and a wider set-off, which inverts the ordinary planning instinct.

Section 71 governs set-off across heads, and sub-section (3) is categorical:

(3) Where in respect of any assessment year, the net result of the computation under the head “Capital gains” is a loss and the assessee has income assessable under any other head of income, the assessee shall not be entitled to have such loss set off against income under the other head.

This is where the regime bites hardest. The dividend created by section 2(22)(f) is income under “Income from other sources”. The loss created by the section 46A proviso is a loss under “Capital gains”. They arise out of the same payment, in the same transaction, often in the same year, and section 71(3) prohibits setting the one against the other. The converse route in section 71(2), which lets a loss under another head be set against capital gains, is open but useless here, because a plain buy-back generates no loss under any other head. The shareholder pays tax on the gross receipt and is left holding a capital loss he may never use.

Section 74 governs carry forward:

74. (1) Where in respect of any assessment year, the net result of the computation under the head “Capital gains” is a loss to the assessee, the whole loss shall, subject to the other provisions of this Chapter, be carried forward to the following assessment year, and— (a) in so far as such loss relates to a short-term capital asset, it shall be set off against income, if any, under the head “Capital gains” assessable for that assessment year in respect of any other capital asset; (b) in so far as such loss relates to a long-term capital asset, it shall be set off against income, if any, under the head “Capital gains” assessable for that assessment year in respect of any other capital asset not being a short-term capital asset; (c) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on. (2) No loss shall be carried forward under this section for more than eight assessment years immediately succeeding the assessment year for which the loss was first computed.

The short-term and long-term asymmetry is reproduced in clauses (a) and (b) for every later year, and clause (c) lets the unabsorbed balance roll on. The outer limit is eight assessment years immediately succeeding the assessment year for which the loss was first computed. Sub-section (1) carries the loss forward “subject to the other provisions of this Chapter”, so the entitlement is not unconditional: the other conditions on carry forward in that Chapter apply, and they are checked against the particular return.

For a tax year beginning on or after 1 April 2026 the same three questions are worked under the Income-tax Act, 2025. The counterpart of section 70 is section 108, “Set off of losses under same head of income”:

108. (1) Unless provided otherwise in this Act, for any tax year, if net result of computation from any source under any head of income (other than “Capital gains”) is a loss, then assessee shall be entitled to set off such loss against his income from any other source under the same head for that tax year. (2) Where the net result of computation of income made for any tax year under sections 72 to 90 in respect of— (a) any short-term capital asset is a loss, such loss shall be set off against the income, computed in respect of any other capital asset for that year; (b) any long-term capital asset is a loss, such loss shall be set off against the income computed in respect of any other long-term capital asset for that year.

The 1961 Act’s asymmetry survives word for word in substance. The counterpart of section 74 is section 111, “Carry forward and set off of loss from Capital gains”:

111. (1)(a) Where for any tax year, loss computed under the head “Capital gains” cannot be wholly set off against the income under the head “Capital gains” as per section 108, so much of the loss not so set off or the whole loss, as the case may be, shall be carried forward to the following tax year and shall be set off in the following manner— (i) if such loss relates to a short-term capital asset, it shall be set off only against the income under the head “Capital gains”, if any, assessable for that tax year in respect of any other capital asset; (ii) if such loss relates to a long-term capital asset, it shall be set off only against the income under the head “Capital gains”, if any, assessable for that tax year in respect of any other long-term capital asset; and (b) if the loss cannot be wholly so set off under clause (a), the amount of loss not so set off shall be carried forward to the following tax year and so on. (2) No loss shall be carried forward under this section for more than eight tax years immediately succeeding the tax year for which the loss was first computed.

Eight tax years, the same asymmetry, no sub-section (3) and no proviso. The counterpart of section 71 is section 109 of the 2025 Act. Section 110(1) and section 112(1) of that Act each speak of a loss that “cannot be wholly set off against the income under any other head as per section 109”, which fixes section 109 as the inter-head set-off provision. Whether section 109 reproduces the specific bar in section 71(3) of the 1961 Act, that a capital loss shall not be set off against income under another head, depends on what section 109 itself says, and a computation for tax year 2026-27 that carries the section 71(3) proposition across has settled nothing.

This matters even though regime two is closed, because an eight-year carry forward of a loss first computed for assessment year 2025-26 or 2026-27 runs well into the years governed by the 2025 Act. Those later set-offs are worked under sections 108 and 111. Section 111 does not by its words identify the Act under which a loss was computed, so a loss brought forward from an assessment year under the 1961 Act is claimed and supported on the file rather than carried across as a matter of course.

Worked example: a resident individual, unquoted shares, buy-back after 1 October 2024

The figures are round and the facts are generic.

Input	Amount
Shares held in an unlisted Indian private company	10,000 equity shares
Date of acquisition	January 2020
Cost of acquisition, Rs 100 per share	Rs 10,00,000
Date the buy-back took place, under section 68 of the Companies Act, 2013	December 2024
Buy-back price, Rs 500 per share	Rs 50,00,000
Holding period	about five years, so more than twenty-four months
Other income of the shareholder	already above the top of the rate table
Capital gains of the shareholder in the same year	nil

The shareholder’s rate is an assumption in this illustration and not a statement of the rate. Take his effective rate on the dividend, inclusive of surcharge and cess, at 30 per cent for the arithmetic; on a real file the figure comes from the Finance Act for the year applied to his own total income. Assume also that the price of Rs 500 a share is not below the fair market value prescribed for such a share through rule 11UAA, so that section 50CA does not engage. Here that figure is assumed and not computed, and Step 4 is where it is used.

Step 1. The deemed dividend. Section 2(22)(f) makes the whole payment a dividend: Rs 50,00,000. Not Rs 40,00,000, which is what he has actually made, and not the excess over the issue price.

Step 2. Deductions against it. Nil. Clause 24(a) of the Finance (No. 2) Act, 2024 carved this species of dividend out of section 57(i) and clause 24(c) added an express bar, and the cost of the shares is not deductible against a dividend in any event.

Step 3. Tax on the dividend. Rs 50,00,000 at the assumed 30 per cent: Rs 15,00,000.

Step 4. The capital gains computation under section 46A.

Line	Amount
Value of consideration received, deemed nil by the proviso	Rs 0
Less: cost of acquisition	Rs 10,00,000
Capital gains deemed to arise under section 46A, that is a loss	(Rs 10,00,000)

The shares were held for more than twenty-four months, so under section 2(42A) read with section 2(29AA) the loss is a long-term capital loss of Rs 10,00,000. That is what section 46A produces. The shares not being quoted shares, section 50CA is cleared first, and on the assumption stated with the rate above, that the price of Rs 500 a share is not below the fair market value prescribed through rule 11UAA, it does not engage; the steps that follow take the loss at that figure.

Step 5. Withholding by the company. Section 194 requires deduction at ten per cent of the amount of the dividend: Rs 5,00,000 on Rs 50,00,000. The shareholder receives Rs 45,00,000 in cash and credits Rs 5,00,000 against his liability of Rs 15,00,000, leaving Rs 10,00,000 to find by way of advance tax or on assessment.

Step 6. What he can do with the Rs 10,00,000 loss. He has no capital gains in the year, so there is nothing to set it off against under section 70(3). Section 71(3) forbids setting it against the dividend of Rs 50,00,000 or against any other head of income. It is carried forward under section 74(1) and can be set off, in any of the eight assessment years immediately succeeding, only against long-term capital gains. If he never has long-term capital gains in that window, the Rs 10,00,000 lapses unused.

The position in cash. The gross consideration is Rs 50,00,000 for shares that cost Rs 10,00,000, so he has made Rs 40,00,000, and he pays Rs 15,00,000 of tax, of which Rs 5,00,000 was withheld at source. On the assumed rate that is 37.5 per cent of what he actually made, because the charge falls on the Rs 50,00,000 and not on the Rs 40,00,000. He also holds a long-term capital loss of Rs 10,00,000 worth nothing to him unless long-term capital gains turn up within eight assessment years. That is regime two in one page: taxed on the whole receipt, holding a loss he may never use.

Change one fact. Had he acquired the same shares in January 2024, with the buy-back still in December 2024, the holding period is under twenty-four months. The dividend, the tax and the loss are identical in amount, but the loss is now short-term and section 70(2) lets him set it against any capital gain of the year, long-term or short-term. With a long-term capital gain of Rs 10,00,000 elsewhere that year, the whole loss is absorbed at once.

The double lock: no deduction against a buy-back dividend

Dividend income is not ordinarily taxed gross. Section 57 is the provision that allows deductions against income chargeable under “Income from other sources”, and its clause (i) carries the words “in the case of dividends,”. For a buy-back dividend under section 2(22)(f) the Finance (No. 2) Act, 2024 shut that door twice over, in a single clause, both limbs with effect from 1 October 2024. Clause 24 of that Act reads, so far as it matters here:

24. In section 57 of the Income-tax Act,–– (a) in clause (i), after the words “in the case of dividends,”, the words, brackets, letter and figures “other than that referred in sub-clause (f) of clause (22) of section 2” shall be inserted with effect from the 1st day of October, 2024; … (c) after the proviso, the following proviso shall be inserted with effect from the 1st day of October, 2024, namely:–– “Provided further that no deduction shall be allowed in case of dividend income of the nature referred to in sub-clause (f) of clause (22) of section 2.”.

The first lock is a carve-out. Clause 24(a) inserts into the dividend limb of section 57(i) the words “other than that referred in sub-clause (f) of clause (22) of section 2”, taking a buy-back dividend outside the clause that would otherwise have allowed a deduction against it.

The second lock is a prohibition. Clause 24(c) adds a further proviso in terms that leave nothing to construction: “no deduction shall be allowed in case of dividend income of the nature referred to in sub-clause (f) of clause (22) of section 2”. Not a capped deduction, not a reduced one, none.

The two limbs do different work. The carve-out answers the argument that clause (i) itself allows the deduction; the prohibition answers the argument that a deduction survives outside clause (i) on the general words of the section, and the argument that the carve-out in clause (i) merely relocates the deduction rather than denying it. For a shareholder who borrowed to acquire the shares that is the whole answer: the interest is not deductible against the buy-back dividend in any amount, and whatever limits apply to a deduction against ordinary dividend income are beside the point, because here there is no deduction to limit.

The gearing that makes a buy-back attractive to an exiting shareholder in commercial terms is tax-irrelevant under regime two: a shareholder who funded his Rs 10,00,000 cost with Rs 10,00,000 of borrowed money, and serviced it for years, is taxed on the gross consideration exactly as a shareholder who paid cash. And the interest is not rescued on the capital gains side either. Section 46A measures the loss by the cost of acquisition, so interest paid after the shares were acquired does not enlarge it and does not enter that computation at all.

Worked example: the same shareholder, who borrowed to buy the shares

Take the first example and change one fact. The Rs 10,00,000 cost of acquisition was funded entirely by a loan, and the shareholder paid interest of Rs 1,00,000 on it during the year in which the buy-back took place. Everything else is identical, including the assumed 30 per cent rate and the assumption that the price of Rs 500 a share is not below the fair market value prescribed through rule 11UAA, so section 50CA does not engage.

Line	Amount
Buy-back consideration received	Rs 50,00,000
Deemed dividend under section 2(22)(f)	Rs 50,00,000
Interest on borrowed money paid during the year	Rs 1,00,000
Deduction allowed for that interest against the dividend: section 57(i) as amended by clause 24(a), and the further proviso inserted by clause 24(c)	Rs 0
Dividend chargeable under section 56(2)(i)	Rs 50,00,000
Tax at the assumed 30 per cent	Rs 15,00,000
Capital gains computed under section 46A: nil consideration less cost of acquisition of Rs 10,00,000	(Rs 10,00,000) long-term capital loss
Deduction or addition for the Rs 1,00,000 interest anywhere in that computation	Rs 0

His real economic gain is Rs 50,00,000 less the Rs 10,00,000 cost less the Rs 1,00,000 interest, that is Rs 39,00,000. He pays Rs 15,00,000, about 38.5 per cent of what he actually made on the assumed rate, and holds the same unusable long-term capital loss of Rs 10,00,000. The Rs 1,00,000 of interest is relieved nowhere: not against the dividend, because of the double lock, and not in the section 46A computation, which looks only at cost of acquisition.

Set that against a buy-back that took place before 1 October 2024. The charge then fell on the company under section 115QA and the shareholder’s receipt was exempt in his hands under section 10(34A), so his personal tax on the Rs 50,00,000 was nil, his interest deduction was irrelevant, and no capital loss arose for him to carry forward. The 2024 amendments did not raise a rate on him; they created a liability where he had none.

Withholding in the 2024 window: sections 194 and 195

Withholding is where regime two first becomes visible on a file, because the company has to act before anyone has thought about the shareholder’s own computation. The answer splits by the shareholder’s residence, and the resident half is decided by an enumeration rather than by the general words.

The resident shareholder: section 194, not section 195

For a resident shareholder in the window from 1 October 2024 to 31 March 2026 the deducting provision is section 194, headed “Dividends”, in Chapter XVII. This is not an open question on the text: the section enumerates the sub-clauses of section 2(22) that it covers, and sub-clause (f) is named in that enumeration in the section’s own words:

194. The principal officer of an Indian company or a company which has made the prescribed arrangements for the declaration and payment of dividends (including dividends on preference shares) within India, shall, before making any payment by any mode in respect of any dividend or before making any distribution or payment to a shareholder, who is resident in India, of any dividend within the meaning of sub-clause (a) or sub-clause (b) or sub-clause (c) or sub-clause (d) or sub-clause (e) 22[or sub-clause (f)] of clause (22) of section 2, deduct from the amount of such dividend, income-tax at the rate of ten per cent :

Parliament amended the enumeration rather than leaving the point to the general words, so a buy-back distribution that is a deemed dividend under section 2(22)(f) is within section 194 by express inclusion. Two further textual points run the same way. The first limb of the obligation is not keyed to the enumeration at all: it bites “before making any payment by any mode in respect of any dividend”, and only the second limb is tied to the listed sub-clauses. And the words “by any mode” have replaced an older formula keyed to payment “in cash or before issuing any cheque or warrant”, so a buy-back consideration remitted by electronic transfer is squarely covered.

The rate is ten per cent and the base is “the amount of such dividend”, that is the whole payment, with no reduction for the shareholder’s cost of acquisition. That is consistent with the charge, since the cost is not an allowance against the dividend anywhere in the Act. On the figures in the first worked example the company deducts Rs 5,00,000 from a payment of Rs 50,00,000.

The threshold in the first proviso is narrow, in a way that catches most buy-backs. It exempts deduction only where all three of its conditions hold: the shareholder is an individual; the dividend is paid by any mode other than cash; and the amount of the dividend, or the aggregate of the amounts distributed or paid or likely to be distributed or paid during the financial year by the company to that shareholder, does not exceed the figure stated in the proviso. A company, firm, Hindu undivided family or trust gets no threshold at all, because the proviso opens “in the case of a shareholder, being an individual”, and an individual paid in cash gets none either. Because the test is a financial-year aggregate of what is paid or is likely to be paid to that shareholder, a tranche-by-tranche buy-back cannot be sliced under the figure by paying in instalments.

The second proviso excludes certain payees from the section altogether:

Provided further that the provisions of this section shall not apply to such income credited or paid to— (a) the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956 (31 of 1956), in respect of any shares owned by it or in which it has full beneficial interest; (b) the General Insurance Corporation of India (hereafter in this proviso referred to as the Corporation) or to any of the four companies (hereafter in this proviso referred to as such company), formed by virtue of the schemes framed under sub-section (1) of section 16 of the General Insurance Business (Nationalisation) Act, 1972 (57 of 1972), in respect of any shares owned by the Corporation or such company or in which the Corporation or such company has full beneficial interest; (c) any other insurer in respect of any shares owned by it or in which it has full beneficial interest; (d) a “business trust”, as defined in clause (13A) of section 2, by a special purpose vehicle referred to in the Explanation to clause (23FC) of section 10; (e) any other person as may be notified by the Central Government in the Official Gazette in this behalf.

Every one of those exclusions is defined by who the payee is. The ones that matter on a buy-back are the insurers, including the words “any other insurer”, and notified persons. Nothing in the list excludes a buy-back as a transaction, and nothing excludes a section 2(22)(f) payment as a species of dividend. There is no Explanation to the section. So the company deducts unless its shareholder is one of the named payees, and the shareholder’s route to a lower deduction is a certificate or an order, not an argument about the nature of the receipt.

The non-resident shareholder: section 195 and the treaty

For a non-resident shareholder the deducting provision is section 195, “Other sums”. Sub-section (1) requires any person responsible for paying to a non-resident, not being a company, or to a foreign company, “any other sum chargeable under the provisions of this Act (not being income chargeable under the head ‘Salaries’)” to deduct income-tax thereon “at the rates in force”, at the earlier of credit to the payee’s account or payment. A buy-back payment to a non-resident in that window is such a sum: it is dividend under section 2(22)(f), chargeable under section 56(2)(i), and the section 10(34A) exemption no longer reaches it. Section 195 bites on the whole payment, for the same reason section 194 does, and there is no threshold in it and no basic-exemption relief.

“Rates in force” takes the payer to Part II of the First Schedule to the Finance Act for the year, read with section 2(37A)(iii), and, where a treaty applies, to section 90(2) and the machinery in sections 195(2), 195(3) and 197. In practice the non-resident’s relief is sought before the payment, by an application for a certificate or an order under those provisions, because the company deducts on the gross sum and the shareholder is otherwise left to claim a refund in his return. Whether a section 2(22)(f) receipt answers the definition of dividends in the particular treaty, or falls to be tested under its capital gains article or its residual article, is a question on that treaty’s own wording and is not answered by the Indian deeming provision. It has to be run treaty by treaty, and the answer can move the rate a long way. The obligation is on “any person responsible for paying”, so the company buying back carries it, and a failure exposes the company under section 201 and to the disallowance under section 40(a)(i), not merely to a dispute about the shareholder’s liability.

For a tax year beginning on or after 1 April 2026 the 2025 Act recasts this without changing its substance. The counterpart of section 195 is section 393, “Tax to be deducted at source”, whose sub-section (2) opens “Where any income or sum of the nature specified in column B of the Table below” and requires deduction at the rate in column E, at the earlier of credit or payment. The section 195 analogue is entry Sl. No. 17 of that Table: the nature of the sum is interest, other than the interest at Sl. Nos. 2 to 5, or “any other sum chargeable under the provisions of this Act”, excluding income chargeable under “Salaries”; the payee is “Any non-resident (not being a company) or a foreign company”; the payer is “Any person”; and the rate is “Rates in force”. Note 3(b) to that entry carries forward the extension in Explanation 2 to section 195(1), applying the obligation to all persons, resident or non-resident, whether or not the non-resident has a residence, place of business, business connection or any other presence in India. The change is formal: one tabular section replaces the 1961 Act’s separate withholding sections, and the “any other sum chargeable” hook that catches a buy-back payment to a non-resident sits in a Table entry rather than in the body of the section.

Open questions on the 2024 window

Each of these arises on a live file and is argued both ways, with the view of Sunil Maloo & Co., Ahmedabad, stated where the firm has one. The numbering runs continuously across the four Parts.

5. Can a company with no accumulated profits pay a full deemed dividend under section 2(22)(f)?

Sub-clauses (a), (b), (d) and (e) of section 2(22) are each qualified by the words “to the extent to which the company possesses accumulated profits”, and Explanation 2 defines that expression for those sub-clauses and for sub-clause (c). Sub-clause (f) carries no qualifier and Explanation 2 was not extended to it, so on the words a company with nil or negative reserves pays a dividend for tax purposes on every rupee of the price.

For the Revenue the answer is the text. The qualifier was available, it was used in the sub-clauses that carry it and it was not used in sub-clause (f). Explanation 2 names the sub-clauses it reaches and sub-clause (f) is not among them. A definition that says “dividend includes” can include what the general word would not.

For the assessee, section 2(22) is an inclusive definition, and an inclusive definition enlarges the class of payments that count as a dividend without displacing what the word itself means, which is a distribution of profits; sub-clause (f) brings a buy-back payment within “dividend” and leaves the ordinary limit of the word in place. Explanation 2 is not a list of the limbs that are capped. Its words do not stop at sub-clauses (a), (b), (d) and (e): they continue “and in sub-clause (c) shall include all profits of the company up to the date of liquidation”, so the Explanation reaches every sub-clause that existed when it was last amended, and silence about a sub-clause inserted long afterwards is as consistent with its not having been revisited as with a decision to uncap the new limb. And sub-clause (f) was enacted to move to the shareholder the same distribution that section 115QA had taxed in the company’s hands on a measure of consideration less the amount received on issue, not to enlarge the base beyond anything that could be a distribution of profits at all.

Where it stands: open on the words. The firm’s view is that the charge falls on the whole payment, because the qualifier was available, was used in the sub-clauses that carry it and was not used in sub-clause (f), and because the sub-clause does not measure itself by profits in any other respect either. The contrary argument is recorded because it is run, and because a company with nil or negative reserves taxed on every rupee of a buy-back price has nothing else to say.

6. Is a repurchase that is not under section 68 of the Companies Act within section 2(22)(f) at all?

Sub-clause (f) reaches a payment made “in accordance with the provisions of section 68 of the Companies Act, 2013 (18 of 2013)”, and the proviso to section 46A applies only where the consideration is “of the nature referred to in sub-clause (f)”. A repurchase outside section 68 is on the literal words outside both, and the receipt would fall to be tested under sub-clause (d) and section 2(47), with the unamended main limb of section 46A supplying the computation.

For the Revenue, those words describe the transaction Parliament had in mind rather than impose a condition, and a shareholder in a non-compliant repurchase cannot be better placed than one in a compliant one. The condition cannot have been meant to make the shareholder’s head of income depend on his own company’s default, so the words are satisfied where the repurchase is of the species the section governs and its conditions are met in substance; a shareholder cannot improve his own charge by proving a contravention. And the omission of exclusion (iv) leaves no carve-out for a buy-back payment anywhere in section 2(22), so a repurchase outside sub-clause (f) is not obviously outside “dividend” either.

For the assessee the words are a condition. The same keying appears in section 69(2) of the 2025 Act, where it governs the promoter’s additional income-tax but not the computation in section 69(1), which shows the drafter distinguishing the two. Whether that keying is a condition there is a separate dispute, question 15 in Part 3, because what the reading buys is relief from the promoter’s layer and not a change in the head of income.

Where it stands: open. The firm’s view is that the words are a condition, so an ordinary gain or loss is computed on the actual consideration. The argument has a price: it requires the shareholder to assert that his own company did not comply with section 68, which has consequences beyond the computation.

7. Does a buy-back of specified securities that are not shares fall outside the 2024 regime?

Section 2(22)(f) speaks of a payment on purchase of a company’s “own shares”, and the proviso to section 46A zeroes the consideration only “in respect of any buy-back of shares”. The main limb of section 46A covers “shares or other specified securities”, takes that expression from the Explanation to section 77A of the Companies Act, 1956 and was left untouched in 2024, while sub-clause (f) is keyed to section 68 of the Companies Act, 2013.

For the Revenue, the 2024 package was built to tax buy-back consideration in the shareholder’s hands, and a reading that splits one transaction into two regimes creates a gap for no reason. The main limb shows the drafter using “shares” where it meant the generality.

For the assessee, the drafter wrote “shares or other specified securities” when it meant both and “shares” when it meant one, in the very section it was amending, and the two limbs are keyed to two different company statutes.

Where it stands: open. On the words the narrower reading is the stronger, and that is the firm’s view. The consequence is a reporting one and it runs both ways. On the firm’s reading an issuer that applied the nil-consideration proviso to every instrument bought back in the window reported the wrong figure for anything that is not a share, and the holder of such an instrument was taxed on the gross receipt as a dividend, and withheld from under section 194, when his computation should have been an ordinary gain or loss on the actual consideration. On the Revenue’s reading the figures as reported are right, and a holder who reopens them is asserting that a package enacted to tax buy-back consideration in the shareholder’s hands left a gap in the very transaction it was built for. Either way the instrument is classified on the file, under the Act whose definition applies, before the figure is reported.

8. Can the deemed dividend and the section 46A loss fall in different years?

Section 46A fixes the year of the capital gains computation as “the year in which such shares or other specified securities were purchased by the company”. The dividend under section 2(22)(f) is income from other sources and its year is fixed by the ordinary timing rules for that head. Where a buy-back is completed close to 31 March, or payment follows completion across a year end, the two can part company.

For the Revenue the two are halves of one transaction, on ordinary facts the purchase and the payment fall in the same year, and “purchased by the company” is satisfied when the buy-back is completed, which is also when the shareholder becomes entitled to the money.

For the assessee the two provisions use different language deliberately, the express year rule displaces any assumption that they coincide, and a buy-back can be completed in one year with consideration paid in the next.

Where it stands: open on the texts, and a split hurts the shareholder rather than the Revenue, because a loss in the earlier year cannot reach a dividend in the later one even if section 71(3) permitted it. The firm’s view is that the loss year is fixed by section 46A on its own words and is not moved to match the dividend.

9. Can section 94(8) reach the loss the section 46A proviso manufactures?

Section 94(8) applies where a person acquires securities within three months before a record date, is allotted additional securities without payment on the basis of that holding, and sells or transfers all or any of the original securities within nine months after that record date while continuing to hold all or any of the additional securities. The loss is then ignored and becomes the cost of the additional securities.

For the Revenue this is the loss the provision exists to deny. It arises on a disposal of the original holding while the bonus shares are kept, and nothing in the sub-section confines it to a loss produced by a price differential. On the record date the Revenue’s answer is that the date the sub-section is concerned with is the bonus record date and not the buy-back record date: clause (a) looks to an acquisition within three months before the date on which the entitlement to the additional securities was fixed, and the tender into the buy-back is the sale or transfer in clause (c), which the sub-section nowhere requires to be a market sale. On the only facts on which the sub-section can bite at all, the first ingredient is therefore satisfied.

For the assessee two ingredients do not fit. The record date in Explanation (aa) is a date of entitlement to dividend, income or additional securities without consideration, while a buy-back record date is a date of entitlement to tender. And the sub-section operates on a loss arising “on account of such purchase and sale”, whereas the regime two loss arises from the deeming of consideration to nil and would be the same figure at any price.

Section 94(7), the dividend-stripping twin, cannot apply at all, because it requires the dividend or income on the securities to be exempt and the section 2(22)(f) dividend is taxable. The argument is therefore about sub-section (8) alone.

Where it stands: open, and live only where a bonus issue is in the picture. The firm’s view is that the loss is not one arising on account of the purchase and sale, but the point is argued on both ingredients and not on the record date alone.

10. Does the bar in section 71(3) carry into the inter-head set-off provision of the 2025 Act?

Section 71(3) of the 1961 Act is categorical: a loss under “Capital gains” shall not be set off against income under any other head. In the 2025 Act the same-head provision is section 108 and the carry-forward provision is section 111. The inter-head provision is section 109: sections 110(1) and 112(1) each speak of a loss that “cannot be wholly set off against the income under any other head as per section 109”.

For the Revenue the 2025 Act is a recast and not a change of policy: sections 108 and 111 carry the old restrictions forward in substance, and a loss that could not cross heads in 1961 does not acquire that ability by renumbering.

For the assessee, a provision that disables a set-off must be found in the words that disable it. Sections 108 and 111 state their own restrictions expressly, and the cross-references in sections 110(1) and 112(1) show section 109 operating as the provision by which losses reach other heads.

Where it stands: to be settled on what section 109 says, not assumed either way for tax year 2026-27 onwards, and the firm takes no position in advance of those words. What should not happen is carrying the section 71(3) proposition into a 2025 Act computation as though only the numbering had changed.

11. How is a capital loss first computed under the 1961 Act carried into years governed by the 2025 Act?

A long-term buy-back loss first computed for assessment year 2025-26 has eight assessment years under section 74(2) in which to find long-term capital gains. The later years in that window are governed by the 2025 Act, whose machinery is sections 108 and 111, and section 111(2) allows no carry forward beyond eight tax years immediately succeeding “the tax year for which the loss was first computed”.

For the Revenue, section 111 operates on a loss computed under the head “Capital gains” for a tax year, and its limit is measured from the tax year for which the loss was first computed. A loss computed for an assessment year under a different Act answers neither description exactly, so the claim must rest on something other than section 111.

For the assessee, sections 108 and 111 are the only set-off machinery available in a 2025 Act year, section 111(1)(a) does not identify the Act under which the loss was computed, and section 74(1) had already carried the loss forward before those years began.

Where it stands: open, and not answered by section 111, which does not by its words identify the Act under which the loss was computed. The answer turns on how the change of Act is bridged rather than on section 111, and no view is stated here on the outcome. What follows on a file is that a loss brought forward from an assessment year under the 1961 Act is claimed, with the year of first computation and the amount supported, rather than carried into a 2025 Act computation as though only the numbering had changed.

12. Where section 50CA meets the proviso to section 46A, which deeming prevails?

On a buy-back in the window of a share other than a quoted share, priced below the fair market value prescribed for section 50CA by rule 11UAA of the Income-tax Rules, 1962, two deemings meet. The proviso to section 46A deems the value of consideration nil “for the purposes of this section”, which yields a loss equal to cost. Section 50CA deems the prescribed fair market value to be the full value of consideration “for the purposes of section 48”, and section 46A computes “subject to the provisions of section 48”.

For the Revenue the route is in the words. Section 46A directs that the difference be computed subject to the provisions of section 48, section 50CA has already fixed the full value of consideration there, and the proviso’s own deeming is confined to section 46A. What the shareholder returns is therefore the prescribed value less his cost. There is a further step: if the figure the proviso supplies is what the shareholder has received, the consideration section 50CA compares with fair market value is nil and the trigger is met on every such buy-back and not only on an underpriced one.

For the assessee the proviso is the later provision and the more specific, inserted with effect from 1 October 2024 and directed at a buy-back alone; the two provisions do not fix the same expression, section 46A computing on “the value of consideration received by the shareholder” and section 50CA fixing “the full value of consideration” for the purposes of section 48; the whole price has already borne tax as dividend under section 2(22)(f), so the substitution charges part of that same sum a second time; and on the extinguishment reasoning in Globe Capital and Sanjana Cryogenic the share tendered into a buy-back does not pass to anyone who can enjoy it, which goes to section 50CA’s own opening words. The answer to the further step is the confinement of the proviso to its own section: what it supplies is not the consideration “received or accruing” that section 50CA measures, which is the price the company paid.

The Revenue answers each. Section 50CA is not the general provision, its own heading being “Special provision for full value of consideration for transfer of share other than quoted share”, so the assessee is left with the later-provision point alone. Whether the two expressions are different in substance is the whole question, because the words “subject to the provisions of section 48” may carry the section 48 input into section 46A. The double charge is the design of the 2024 scheme, which taxes the gross receipt as dividend and simultaneously treats the shareholder as having received nothing for the shares, and not a reason to read down a provision on the capital gains side. And the shareholder’s side of a buy-back is a transfer by him, which section 46A itself proceeds on by deeming capital gains to arise to him, so the extinguishment reasoning, which answered a charge on the company’s acquisition of property, does not obviously answer a provision aimed at the transferor; the firm does not put that limb high, consistently with the view it states on section 79 in Part 3.

Where it stands: open. The firm’s view is that the proviso governs, because a deeming addressed to section 48 at large does not displace a deeming addressed to the computation actually in hand, and not because the proviso would otherwise be deprived of effect, which on the Revenue’s reading it would not be. The prescribed fair market value goes on the file either way, because what turns on the answer is a loss equal to cost against a gain measured from that value.

On a live file: a buy-back in the 2024 window

What to establish on the file, and what has to be provable later.

Date and gateway. Confirm the buy-back took place on or after 1 October 2024 and on or before 31 March 2026, and preserve the documents that fix the date, because the operative limbs use the undefined expression “takes place on or after”. Then settle whether the repurchase was in accordance with section 68 of the Companies Act, 2013, which decides whether section 2(22)(f) and the nil-consideration proviso to section 46A apply at all.

The dividend. Check that the whole consideration, not the excess over cost or issue price, has been reported as dividend under “Income from other sources”; there is no accumulated-profits limit on the words of sub-clause (f). Confirm that no deduction has been claimed against it, interest on borrowed money included, because clause 24(a) of the Finance (No. 2) Act, 2024 carved this species of dividend out of section 57(i) and clause 24(c) added an express prohibition.

Withholding. For a resident, check deduction under section 194 at ten per cent of the whole dividend, sub-clause (f) being named in that section’s enumeration; test the first proviso, which relieves only an individual, paid otherwise than in cash, within the annual figure it states for the financial year in question; and check the second proviso’s payee exclusions. For a non-resident, check deduction under section 195 on the whole sum, the rate in force, the treaty characterisation of the receipt, and any certificate or order under sections 195(2), 195(3) or 197. Where deduction was short or late, quantify exposure under section 201 and the disallowance under section 40(a)(i).

The cost, the loss and the year. Obtain the cost of acquisition and the acquisition dates, compute the loss under section 46A as cost against nil consideration, and clear section 50CA before treating that loss as certain, because section 46A is expressly subject to section 48. Four questions in order. First, does rule 11UAD, applied to this shareholder’s facts, take him outside the section; if it does, stop. Second, were the shares a capital asset in this shareholder’s hands; if they were not, the section does not reach the transfer at all. Third, is the share a quoted share on the Explanation’s test, which asks for regularity of quotation and for current transactions and not merely for listing; if it is, stop. Fourth, compute the fair market value prescribed through rule 11UAA at the date of transfer, on the sub-clause that fits the instrument, the adjusted net asset value formula taken down to a figure for one share where the share answers rule 11UA’s expression “unquoted equity shares” and the open market price where it is a share or security other than an equity share which is not listed in any recognised stock exchange, and ask whether the price per share is below it; neither book value nor what the shareholder paid is the comparator, so a buy-back at a premium over either can still be below the prescribed figure. The figure is computed to answer that question and stays on the file whichever way it is answered. Only where the first three leave the section in play and the fourth shows a price below the prescribed value does the collision with the proviso arise, and then question 12 is pleaded. Fix the character of the loss on the holding period under section 2(42A) read with section 2(29AA), twenty-four months for a share not listed on a recognised stock exchange in India and twelve for a listed one, a question of listing and not of the Explanation’s quotation test. Confirm the loss was returned in the year the company purchased the shares. Then the set-off: section 70(2) for a short-term loss, section 70(3) for a long-term one, the section 71(3) bar against the dividend and every other head, and carry forward under section 74 within eight years.

Decisions referred to in this series

These are the decisions relied on across the four Parts, of the High Court and of the Income Tax Appellate Tribunal (ITAT), with their particulars and the limits of what each one holds. Each is set out by CA Sunil Maloo of Sunil Maloo & Co., Ahmedabad, who is the author of this series.

Pr. Commissioner of Income Tax, Central - II, New Delhi v. M/s Globe Capital Market Ltd.

High Court of Delhi at New Delhi, Division Bench of Dinesh Mehta and Vinod Kumar JJ, judgment per Dinesh Mehta J and marked “(Oral)”, ITA 364/2024, decided 7 April 2026, assessment year 2018-19, reported at [2026] 185 taxmann.com 513 (Del.). The Revenue’s appeal against the deletion of an addition of Rs 16,33,34,250 under section 56(2)(x) was dismissed: a buy-back under section 68 of the Companies Act, 2013 is in substance a reduction of share capital, the property extinguishes once the shares are bought back, and the hypothesis that the company acquired an asset below fair market value has no legs to stand on. At paragraph 29 the Court accepted the Revenue’s contention that the Tribunal’s reliance on the Hyderabad Bench decision was misplaced, because the provision considered there was section 56(2)(viia) and not section 56(2)(x), while treating that reliance as only incidental to the result. The Court therefore did not approve that decision. This is the only High Court decision on the question and it is an oral judgment.

DCIT, Central Circle-15, New Delhi v. M/s Globe Capital Market Ltd.

ITAT Delhi Bench “F”, Dr B.R.R. Kumar AM and Ms Astha Chandra JM, ITA No. 967/Del/2023, order dated 25 September 2023, assessment year 2018-19. The order under appeal in the High Court. The Revenue’s appeal was dismissed and the Commissioner (Appeals)’s deletion upheld, the shares having been extinguished by reduction of paid-up capital, and the Tribunal recorded that no contrary higher judicial authority had been placed before it.

DCIT CC-8(3), Mumbai v. Sanjana Cryogenic Storages Ltd., Mumbai

ITAT Mumbai Bench “F”, Amit Shukla JM and Arun Khodpia AM, ITA No. 2503/Mum/2026, assessment year 2022-23, heard 3 August 2026 and pronounced 31 August 2026. An addition of Rs 43,32,82,200 under section 56(2)(x), on a rule 11UA value of Rs 595.49 per share against a buy-back price of Rs 40 for 7,80,000 shares, was deleted by the Commissioner (Appeals), and the Revenue’s appeal against that deletion was dismissed. Receipt and extinguishment cannot be severed, because under section 68(7) of the Companies Act, 2013 the extinguishment is an integral statutory consequence of the buy-back, so the company receives no property. The Tribunal expressly declined to decide whether rejection of the general anti-avoidance rule by an Approving Panel excludes every other provision, and whether section 115QA is an exhaustive and exclusive code.

M/s. Vora Financial Services P. Ltd. v. Assistant Commissioner of Income Tax, 2(3)(1), Mumbai

ITAT Mumbai “F” Bench, B.R. Baskaran AM and Pawan Singh JM, ITA No. 532/Mum/2018, assessment year 2014-15, pronounced 29 June 2018, reported at [2018] 171 ITD 646 and 194 TTJ 746 (Mum.). The assessee’s appeal was allowed and an addition of Rs 82,89,710 under section 56(2)(viia) was directed to be deleted on two cumulative conditions, each of which failed: the shares must become the property, and so a capital asset, of the recipient company, and they must be shares of some other company. The name is spelt Vora; a citation carrying the spelling “Vohra” is the same case.

VITP Private Limited, Hyderabad v. Deputy Commissioner of Income Tax, Circle-17(2), Hyderabad

ITAT Hyderabad Benches “A”, Rama Kanta Panda AM and K. Narasimha Chary JM, ITA Nos. 67 and 76/Hyd/2018, assessment years 2013-14 and 2014-15, pronounced 3 August 2022, cited as 2022 (8) TMI 220, which is the citation the Delhi High Court itself prints in Globe Capital. The Tribunal applied the two Vora conditions, allowed both appeals and deleted the section 56(2)(viia) additions in both years. This is the decision on which the Tribunal below in Globe Capital relied, and the Delhi High Court held that reliance misplaced because the provision considered in it was section 56(2)(viia) and not section 56(2)(x).

DCIT v. TPS Infrastructure Ltd.

ITAT Delhi Bench “G”, ITA 6433/Del/2018, order dated 14 December 2022, cited as 2022 (12) TMI 693. The Tribunal accepted the legal position, that a company’s own shares cannot become the property of the recipient company, and restored the matter to the Assessing Officer to verify that the shares had in fact been extinguished by reduction of paid-up capital, directing deletion only if that was confirmed. The ratio therefore carries a factual precondition.

DCIT v. Venture Lighting India Ltd.

ITAT Chennai Bench “C”, ITA 3171/CHNY/2019, order dated 14 December 2022, cited as 2022 (12) TMI 696. The Revenue’s appeal was dismissed on the Vora reasoning, and the Revenue’s alternative “hidden asset” argument built on section 2(22)(d) read with section 115-O was rejected.

Lupin Investments (P.) Ltd. (successor to Zyma Laboratories Ltd.) v. DCIT

ITAT Mumbai Bench “A”, ITA 4635/Mum/2024, order dated 9 July 2025. An addition of Rs 34,71,17,122 under section 56(2)(viia) was deleted.

Silgate Solutions Ltd. v. DCIT

ITAT Mumbai Bench “G”, ITA 5367/Mum/2025, order dated 4 November 2025. An addition of Rs 1,44,75,000 under section 56(2)(viia) was deleted.

ACIT v. Gamma Pizzakraft Lanka (Pvt.) Ltd.

ITAT Delhi Bench “D”, IT(IT)A Nos. 26 and 27/Del/2025, order dated 12 August 2026. The Revenue’s appeals were dismissed, the Tribunal stating the TPS Infrastructure proposition in the same words, and independently on the footing that the assessee is a non-resident.

M/s. Updater Services Ltd. v. DCIT, and the cross-appeal DCIT v. M/s. Updater Services Ltd.

ITAT Chennai Bench “A”, ITA Nos. 1339/Chny/2025 and 1616/Chny/2025 with C.O. No. 66/Chny/2025, assessment year 2017-18, order dated 14 November 2025. The section 56(2)(viia) buy-back addition, the section 115QA levy and a section 36(1)(iii) disallowance were all set aside and remitted to the Assessing Officer for fresh adjudication, the Tribunal recording that “we have not expressed any opinion on the merits of the additions or deletions”. It is not a decision either way on the merits.

Concordance: the 1961 Act and the 2025 Act

A buy-back now has to be worked under both Acts, depending on the year, so each provision used in this series is mapped to its counterpart. The numbering does not carry across, and the same section number can mean two different things in the two Acts: section 70 of the 1961 Act is the set-off of a loss from one source against income from another source under the same head, while section 70 of the 2025 Act is the list of transactions not regarded as transfer, and both meanings are used in this series. Section 70 of the Companies Act, 2013, which prohibits a buy-back in certain circumstances, is a third provision of that number referred to in this series and belongs to neither of the two Acts mapped below. Section 112 of the 1961 Act is the special rate on long-term capital gains, while section 112 of the 2025 Act is the carry forward and set off of a business loss. Separately, section 69 of the Companies Act, 2013, the transfer of certain sums to the capital redemption reserve account, is a different provision from the identically numbered buy-back charge in the Income-tax Act, 2025.

1961 Act	What it does	2025 Act counterpart	Note
s.2(22)(d)	makes a distribution on a reduction of capital a dividend, to the extent of accumulated profits	s.2(40)(d), within the definition of “dividend”	Substance the same on the measure, the 1961 text’s reference to accumulated profits arising after the previous year ending next before 1 April 1933 not being carried forward. Unamended by the Finance Act, 2026, and the carve-out at “(i)” of s.2(40) still refers to sub-clause (c) or (d), so this is the limb that keeps a capital-reduction distribution within the dividend charge after the omission of (f).
s.2(22)(f)	makes a payment on a buy-back under s.68 of the Companies Act, 2013 a dividend	s.2(40)(f), omitted with effect from 1 April 2026	The slot prints as an omitted sub-clause and the consolidated print’s footnote records the omission by the Finance Act, 2026 and sets out the sub-clause as it stood. The consequential change closed the range in s.7(2)(a) from “(a) to (f)” to “(a) to (e)”.
s.46A	deems the difference between cost of acquisition and consideration on a buy-back to be capital gains of the shareholder	s.69, “Capital gains on purchase by company of its own shares or other specified securities”	Same core charge in s.69(1). Sub-sections (2) and (3), substituted by the Finance Act, 2026, add a promoter-only additional income-tax with no counterpart in the 1961 Act.
s.47	lists the transactions not regarded as a transfer	s.70, “Transactions not regarded as transfer”	Same function, with the clauses running (a) to (zl). No clause covers a company’s purchase of its own shares, or the extinguishment or cancellation of shares, so a buy-back is a transfer under the 2025 Act. Clause (zb) is the conversion of preference shares into equity shares, and the exclusion in s.92(3)(g) admits only the clauses of s.70(1) it names, none of which is a buy-back.
s.48	mode of computation of capital gains	s.72	The capital-gains computation provision of the 2025 Act. It is the provision the s.69(1) charge is expressly made subject to, and the provision for whose purposes s.79 substitutes a fair market value.
s.50CA	substitutes a prescribed fair market value as the full value of consideration, for the purposes of s.48, where a share other than a quoted share is transferred for less than that value	s.79	Same mechanism in the 2025 Act, substituting for the purposes of s.72. Each has a power to take a prescribed class of persons, subject to prescribed conditions, out of its operation: the proviso to s.50CA, which disapplies the whole section and is exercised by rule 11UAD, and s.79(2), which disapplies s.79(1) and is exercised by rule 58. The value for s.50CA is prescribed by rule 11UAA of the 1962 Rules, struck at the date of transfer. The s.50CA Explanation defines a quoted share by regularity of quotation and current transactions, so listing alone does not take a share outside it.
s.111A	charges short-term capital gains at a special rate	s.196, “Tax on short-term capital gains in certain cases”	Twenty per cent, directed at equity shares, units of an equity-oriented fund and units of a business trust on which securities transaction tax has been paid. The first row of the s.69(2) Table is keyed to gains “referred to in section 196”, so whether a short-term gain that is not charged under that section is inside that row is open on the words, which is argued at question 13 of this series.
s.112	charges long-term capital gains at a special rate	s.197, “Tax on long-term capital gains”	Twelve and a half per cent.
s.112A	charges long-term capital gains on securities transaction tax paid equity	s.198, “Tax on long-term capital gains in certain cases”	Twelve and a half per cent above Rs 1,25,000. The second row of the s.69(2) Table is keyed to gains “referred to in section 197 or section 198”.
s.70	set-off of losses under the same head, with long-term capital losses ring-fenced	s.108, “Set off of losses under same head of income”	Substance the same: a short-term capital loss sets off against income computed in respect of any other capital asset, a long-term capital loss only against income computed in respect of another long-term capital asset.
s.71	set-off of a loss under one head against income under another head	s.109	The provision under which a loss computed under one head is set off against income under any other head, as sections 110(1) and 112(1) of the 2025 Act each describe it. Whether it reproduces the bar in s.71(3) of the 1961 Act is a question on its own words.
s.74	carry forward of a capital loss for eight years, with the same ring-fence	s.111, “Carry forward and set off of loss from Capital gains”	Substance the same: short-term losses against any capital gains, long-term losses against long-term gains only, and no carry forward beyond eight tax years succeeding the year for which the loss was first computed.
s.2(42A)	defines “short-term capital asset” and fixes the period of holding	s.2(101), the definition of “short-term capital asset”	Same scheme: twenty-four months generally, twelve months for a security listed in a recognised stock exchange in India, units of the Unit Trust of India, units of an equity-oriented fund and zero-coupon bonds, with the same inclusion and reckoning rules. There is no inclusion rule for a buy-back.
s.2(29AA)	defines “long-term capital asset”	s.2(67), the definition of “long-term capital asset”	Same: a capital asset which is not a short-term capital asset. On the current edition of the 1961 Act, s.2(29A) is the definition of “liable to tax”, so the long-term definition is cited as s.2(29AA).
s.2(14)	defines “capital asset”	s.2(22), the definition of “capital asset”	The 2025 Act clause follows the same scheme and defines “jewellery” within its own carve-out for personal effects. That clause also provides that “property” includes any rights in or in relation to an Indian company, a wider notion than the closed list of property in s.92(5)(f), and the two are not to be conflated.
s.56(2)(x)	charges the excess of fair market value over consideration on a receipt of property	s.92(2)(m), in s.92, “Income from other sources”	Same scheme. “Property” in s.92(5)(f) is a closed list of capital assets of the assessee and includes shares and securities. For property other than immovable property the shortfall must exceed Rs 50,000 and there is no percentage band. The exclusions in s.92(3) carry no buy-back entry.
s.94(8)	ignores a bonus-stripping loss	s.175(9), with the cost-addition rule in s.175(10), in s.175, “Avoidance of tax by certain transactions in securities”	Substance the same: acquisition within three months before the record date, allotment of additional securities without payment, transfer within nine months after that date while the additional securities are retained, and the loss ignored, with the disregarded loss added to the cost of the securities retained.
s.195	withholding on any other sum chargeable, paid to a non-resident	s.393(2), Table Sl. No. 17, in s.393, “Tax to be deducted at source”	Same function, recast into one tabular withholding section. The entry covers “any other sum chargeable under the provisions of this Act” paid to a non-resident not being a company or to a foreign company, by any person, at rates in force, and Note 3(b) carries forward the extension in Explanation 2 to s.195(1).
s.115QA with s.115QB and s.115QC	the company’s own additional income-tax on distributed income on a buy-back, the interest for non-payment and the deemed default	No counterpart in the Income-tax Act, 2025, as amended by the Finance Act, 2026	No section in Chapter XIII, “Determination of tax in special cases”, sections 190 to 235, charges any tax on a company on a buy-back or on distributed income or distributed profits of any kind; the chapter’s only company-level charges fall on the company’s own total income or book profit. The Department’s navigator mapping the 1961 Act to the new Act marks sections 115-O, 115P, 115Q, 115QA, 115QB, 115QC and 115R “Redundant” with no successor section against any of them; that navigator is a Bill-stage document whose third column refers to the latest draft, and it is cited here as that document and not as the enacted numbering.
s.10(34A)	exempts income arising to a shareholder on a buy-back referred to in s.115QA	No counterpart in the Income-tax Act, 2025, as amended by the Finance Act, 2026	The 2025 Act carries its exemptions in Chapter III, “Incomes Which Do Not Form Part of Total Income”, sections 11 and 12, with the operative lists in Schedules II to VIII. Section 10(34A) has no successor anywhere in the new Act and no exemption for a receipt on a buy-back appears in those provisions. It has no row in the Department’s navigator either, the Bill-stage mapping document cited in the row above.
rule 11U of the Income-tax Rules, 1962	defines the expressions used in determining fair market value, including the valuation date	rule 56 of the Income-tax Rules, 2026, “Meaning of expressions used in determination of fair market value”	Supplies the definitions for rules 56 and 57, including “balance sheet”, “merchant banker”, “quoted shares or securities”, “registered valuer” and “valuation date”. The valuation date is fixed separately for each section served, and for s.79 it is the date on which a capital asset being a share of a company other than a quoted share is transferred.
rule 11UA, rule 11UAA and rule 11UAB of the Income-tax Rules, 1962	prescribe the methods of determining fair market value	rule 57 of the Income-tax Rules, 2026, “Determination of fair market value”	One rule of the 2026 Rules replaces all three, on the Department’s Rules navigator. A table keyed to the nature of the property. The unquoted equity share entry carries the same adjusted net asset value formula as rule 11UA(1)(c)(b), with no merchant-banker or discounted cash flow option. Serial numbers 4 and 5, the unquoted-share entries, are the only ones expressed to serve s.72; s.69 appears in no entry.
rule 11UAC and rule 11UAD of the Income-tax Rules, 1962	prescribe the classes of persons outside s.56(2)(x) and outside s.50CA respectively	rule 58 of the Income-tax Rules, 2026, “Prescribed class of persons for the purpose of section 92(3)(i) and section 79 of the Act”	One rule now serves both provisions, so the exemption power in s.79(2) has been exercised. Because rule 58 is the consolidated successor of two rules that served two different provisions, its scope is a question on its own terms and is not carried across from rule 11UAD.

Part 3 carries the story forward to a buy-back in a tax year beginning on or after 1 April 2026: the Income-tax Act, 2025, section 69, the unquoted-share valuation trap and whether the company itself can be taxed under section 56(2)(x).

This note is general commentary on the law as at 08 November 2026 and is not advice on any matter. The position in a particular case depends on its own facts.