Buy-back taxation to 30 September 2024: section 115QA and who pays

This is Part 1 of a four-Part series on the taxation of a buy-back of shares, and it carries the company-law foundation and the regime that ran to 30 September 2024: Part 2 takes the deemed dividend and the stranded capital loss from 1 October 2024, Part 3 the Income-tax Act, 2025, the Finance Act, 2026 reversal and whether the company itself can be taxed, and Part 4 the comparison with a dividend and with a capital reduction, the SEBI route and the general anti-avoidance rule.

A promoter wants out, the company has reserves, and someone at the table says buy-back. The first question is not what rate applies. It is who pays, and the answer has moved twice in two years. A buy-back completed on 30 September 2024 is taxed in the company’s hands and costs the tendering shareholder nothing. The same transaction completed the next day is taxed in full in the shareholder’s hands as dividend income, with his cost of the shares surviving only as a capital loss he may never be able to use. From the tax year beginning 1 April 2026 it is back in capital gains in his hands, under a different statute, with an extra layer on a promoter.

Two Finance Acts did that. The Finance (No. 2) Act, 2024 switched off the company-level charge for a buy-back taking place on or after 1 October 2024 and made the whole payment a dividend. The Finance Act, 2026, operating on the Income-tax Act, 2025 and not on the Act of 1961, omitted that dividend limb again and sent the receipt back into the capital gains computation. So the first thing a buy-back file needs is the date on which the buy-back took place, as distinct from the resolution, the announcement and the payment; and the statute that uses that expression does not define it.

Underneath all three regimes sits one feature of company law that decides more tax questions than any rate. A company has no general power to buy its own shares. Section 67(1) of the Companies Act, 2013 denies it that power unless the consequent reduction of capital is effected under the Act, section 68 is the provision that lifts the bar, and a company acting under it must extinguish and physically destroy what it has bought within seven days. There is no moment at which the company holds its own shares as an asset. That is the foundation on which the hardest question in the series rests, whether the company itself can be charged on the bargain it is said to have obtained, and Part 3 takes it up.

Key points

• The regime is selected by the date on which the buy-back took place: additional income-tax on a domestic company under section 115QA to 30 September 2024, and in the early years of that charge only on a buy-back of shares that were not listed; the whole consideration as a dividend in the shareholder’s hands from 1 October 2024 to 31 March 2026, on the reading of section 2(22)(f) that Part 2 argues both ways; and an ordinary capital gains computation in his hands under the Income-tax Act, 2025 for a tax year beginning on or after 1 April 2026, with an additional income-tax on a promoter.
• The trigger for the 2024 switch is the date the buy-back “takes place”, which the Act nowhere defines, and the four provisions carrying the switch use three different formulae. Where an offer was announced before 1 October 2024 and completed after it, the governing regime is genuinely open and is pleaded rather than assumed.
• Section 67(1) of the Companies Act, 2013 denies a company the power to buy its own shares unless the consequent reduction of capital is effected under the Act, section 67(5) makes a contravention punishable, and on a buy-back section 68 is how that reduction is effected. Section 68(7) then compels the company to extinguish and physically destroy the shares within seven days of the last date of completion, while section 68(9) requires the register to carry two separate dates, cancellation and destruction. Section 66, which the Act devotes to reduction of capital and which requires the Tribunal’s confirmation, does not reach a section 68 buy-back at all, section 66(6) disapplying it, so no confirming order on a reduction is needed; a buy-back embedded in a scheme still comes before the Tribunal under section 230. The SEBI clock is a different obligation and not a longer version of the same one: regulation 11(i) of the SEBI (Buy-Back of Securities) Regulations, 2018 runs fifteen days from acceptance, with a seven working day cap from expiry of the buy-back period.
• Extinguishment has to be provable on the file and not merely asserted. Where an assessing officer taxes the company itself on the bargain it is said to have obtained, the defence is that the company receives nothing it can keep; and in TPS Infrastructure the Tribunal accepted that position but restored the matter to the assessing officer to verify that the shares had in fact been extinguished by reduction of paid-up capital.
• The operative tax provisions of the first two regimes are each keyed to compliance with company law, so whether the section 68 conditions were met is a tax question and not only a secretarial one. The cross-references are not uniform: section 115QA’s own definition was re-keyed to company law generally in 2016, the Explanation to section 46A still points to the repealed Companies Act, 1956, and under the Income-tax Act, 2025 the condition is narrower still, sitting in section 69(2) and not in the charge in section 69(1).
• Distributed income under section 115QA subtracts what the company received on issue of the shares, not what the shareholder paid for them, so a secondary-market purchaser got no relief at all. Rule 40BB of the Income-tax Rules, 1962 supplies that subtrahend, and sub-rule (10), which deems the consideration on a bonus share to be nil, is the largest single swing factor in the computation.
• Section 115QA reached a buy-back of shares and nothing else, while section 68 of the Companies Act, 2013 and the main limb of section 46A both reach shares or other specified securities. So on the words, which the Revenue reads the other way and which question 7 in Part 2 records as open, a buy-back of specified securities other than shares carried no company-level charge in regime one and no exemption under section 10(34A), and the holder’s position fell on section 46A on the actual consideration.
• There is no single effective rate under section 115QA. The surcharge and the cess come from section 2 of the Finance Act for the year and not from the First Schedule, and the twelve per cent surcharge is the larger of the two multipliers: the burden is 20 × 1.12 × 1.03, which is 23.072 per cent, in a year carrying a two plus one per cent cess, and 20 × 1.12 × 1.04, which is 23.296 per cent, where a single four per cent cess applies, so the widely quoted 23.296 is simply wrong for a financial year 2017-18 buy-back. Which Finance Act supplies that surcharge on a buy-back straddling 31 March is not answered by the text, because section 2(4) carries no assessment-year hook of its own.
• How far rule 40BB can be carried back is open. The rule-making hook, the words “, determined in the manner as may be prescribed”, entered clause (ii) of the Explanation to section 115QA(1) by clause 58 of the Finance Act, 2016 with effect from 1 June 2016, while Chapter XII-DA had been in force since 1 June 2013. The Revenue treats the rule as machinery for finding a figure the Explanation always required; the firm’s view is that for an earlier buy-back the subtrahend falls on the unqualified statutory words, with no deemed-nil rule for bonus shares and no first-in-first-out rule, because those sub-rules substitute for the statutory figure rather than measure it.
• Section 10(34A) was switched off and not deleted, so it still exempts a buy-back that took place before 1 October 2024 even where the assessment is made years later, and assessment year 2025-26 can carry receipts from both sides of the date. Because the clause exempted only income on a buy-back “as referred to in section 115QA”, a buy-back that section 115QA never reached, by a company that was not a domestic company for instance, carried no exemption either. Whether a shareholder who tendered below cost in that regime obtained a capital loss is undecided, and on a share other than a quoted share section 50CA has to be cleared, for any year of that regime it reaches, before any such loss is treated as certain; question 4 takes the point.

The three regimes on one page

A CFO who remembers the 2019 answer and applies it to a buy-back completed in 2025, or the 2025 answer to one completed in 2026, is not out by a few percentage points. He has taxed the wrong person.

Period in which the buy-back takes place	Who bears the tax	The charge	The shareholder’s position
1 June 2013 to 30 September 2024	the company, and only a domestic company	section 115QA, additional income-tax at twenty per cent of distributed income, and in the early years of the charge only on a buy-back of shares that were not listed	exempt under section 10(34A), which in the same early years carried the same exclusion of listed shares; where the charge did not reach the buy-back at all, an ordinary section 46A computation on the actual consideration, with section 50CA in the background on a share other than a quoted share, for the years of that window it reaches, which question 4 argues both ways
1 October 2024 to 31 March 2026	the shareholder	the whole payment is a dividend under section 2(22)(f), taxed as income from other sources, on the reading of the sub-clause that Part 2 argues both ways	consideration deemed nil under the proviso to section 46A, so the cost survives only as a capital loss, which section 50CA may reduce, remove or reverse on a below-value buy-back of a share other than a quoted share, a collision Part 2 argues both ways and on which the firm’s view is that the proviso governs
tax year beginning 1 April 2026	the shareholder	ordinary capital gains under section 69 of the Income-tax Act, 2025 (the counterpart of section 46A of the 1961 Act), plus an additional income-tax on a promoter under section 69(2)(b) and a twelve per cent surcharge on that additional tax under section 3(6) of the Finance Act, 2026	an ordinary computation on the actual consideration, with the unquoted-share deeming in section 79 of the 2025 Act in the background

Chapter XII-DA, which carries section 115QA together with sections 115QB and 115QC, was inserted with effect from 1 June 2013 by clause 31 of the Finance Act, 2013. As originally enacted the charge was confined to buy-back of shares “(not being shares listed on a recognised stock exchange)”, so in its early years the charge reached only a buy-back of unlisted shares. Those words no longer appear in the section, and the first proviso now keeps outside the charge a buy-back of listed shares in respect of which a public announcement was made on or before 5 July 2019 in accordance with the SEBI (Buy-Back of Securities) Regulations, 2018, even where the buy-back was completed afterwards.

The first regime ended by sunset rather than by repeal. Clause 39 of the Finance (No. 2) Act, 2024 inserted a second proviso to section 115QA(1) with effect from 1 October 2024: “Provided further that the provisions of this sub-section shall not apply in respect of any buy-back of shares, that takes place on or after the 1st day of October, 2024.” The trigger is the date on which the buy-back “takes place”. It is not the date of payment, not the assessment year, and not the date of the board or shareholder resolution. The section does not define the expression and the Act supplies no definition elsewhere, so where a buy-back was announced before 1 October 2024 and completed after it, the question of which regime governs is genuinely open and has to be argued on the dates of the authorising resolution, the offer, the tender and the payment.

The same Finance (No. 2) Act, 2024 built the second regime out of a matched pair of amendments, both with effect from 1 October 2024. Clause 3(a)(I) inserted section 2(22)(f). As the sub-clause is now printed it makes dividend of “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)”. Clause 3(a)(II) omitted exclusion (iv) from the long line of section 2(22), which had carved buy-back payments out of “dividend” altogether. Citing sub-clause (f) without the omission of exclusion (iv) understates the change, because on the old text the two would have contradicted each other. Clause 4(d) then inserted the proviso to section 10(34A) that switches off the shareholder’s exemption, and clause 18 inserted, before the Explanation to section 46A, the proviso deeming the shareholder’s consideration to be nil.

The third regime is made in a different statute. The Finance Act, 2026 (No. 4 of 2026) received the President’s assent on 30 March 2026, and by section 1(2)(a) its sections 2 to 129, which contain all of its direct-tax provisions, came into force on 1 April 2026 for tax year 2026-27 onwards. Its buy-back changes operate on the Income-tax Act, 2025 and not on the 1961 Act: the buy-back limb of the dividend definition in section 2(40)(f) of the 2025 Act was omitted with effect from 1 April 2026, the cross-reference in section 7(2)(a) was pulled back from “(f)” to “(e)”, and sub-sections (2) and (3) of section 69 were substituted. None of sections 2(22)(f), 46A, 115QA, 10(34A), 56(2)(x), 94(8) or 195 of the 1961 Act is touched by that Act, so the 1 October 2024 regime stands undisturbed in the 1961 Act for the years it still governs.

What a buy-back is in law, and why that decides the tax

A company cannot buy its own shares as a matter of general corporate capacity, and the bar is stated expressly rather than left to be inferred. Section 67(1) of the Companies Act, 2013 provides: “No company limited by shares or by guarantee and having a share capital shall have power to buy its own shares unless the consequent reduction of share capital is effected under the provisions of this Act.” It is drafted as an absence of power rather than as a direction to the company, and it lifts only where the reduction of share capital consequent on the purchase is effected under the provisions of that Act, which on a buy-back is what section 68 provides for. Incapacity is not the only consequence of breach: section 67(5) makes a contravention of the section punishable with a fine on the company of not less than one lakh rupees and up to twenty-five lakh rupees, and every officer of the company who is in default with imprisonment of up to three years and a fine on the same scale. Section 67(2) closes the obvious way round for a public company, prohibiting the giving of financial assistance, “whether directly or indirectly and whether by means of a loan, guarantee, the provision of security or otherwise”, for the purpose of or in connection with a purchase or subscription “made or to be made, by any person of or for any shares in the company or in its holding company”; section 67(3) carries the exceptions, and the two that matter commercially are taken up in Part 4 where they bear on employee shares. Section 67(4) preserves a company’s right to redeem preference shares issued under the Act or under any previous company law, which Part 4 also takes up, because whether a redemption of preference shares is a purchase for tax is itself open and is argued there both ways.

The next question is which provision effects that reduction, and the answer separates the section 68 route from the section 66 procedure at the first step, which is not the same thing as separating a buy-back from a reduction of capital, every buy-back being a reduction of capital in substance. Section 66 is the section the Act devotes to reduction of share capital, and a reduction under it is subject to confirmation by the Tribunal; but section 66(6) provides that “Nothing in this section shall apply to buy-back of its own securities by a company under section 68.” A buy-back under section 68 therefore requires no confirming order on a reduction, and what answers for creditor protection is the post-buy-back debt test in section 68(2)(d) and the capital redemption reserve in section 69 instead. Part 4 sets the two routes against each other on that footing. It does not follow that the Tribunal has no part to play. Confirmation of a reduction and sanction of a scheme of compromise or arrangement are two different functions, and section 66(6) displaces only the first; the second is taken later in this section.

Section 68 is the source of the power, and section 68(1) opens with the words “Notwithstanding anything contained in this Act”, which is the drafter’s acknowledgement that the transaction is otherwise outside what a company may do. Section 68(1) confines the funding to free reserves, the securities premium account, or the proceeds of an issue of shares or other specified securities, with a proviso barring funding out of the proceeds of an earlier issue of the same kind of securities. Section 68(2) then sets the conditions and the quantitative ceilings, section 68(4) requires completion within one year of the authorising resolution, and the proviso at the foot of section 68(2), which speaks of an offer “under this sub-section” and so attaches to the sub-section rather than to any one of its clauses, bars a further offer “within a period of one year reckoned from the date of the closure of the preceding offer of buy-back, if any”.

Section 68(3) provides that the notice of the meeting at which the special resolution is proposed must be accompanied by an explanatory statement stating “(a) a full and complete disclosure of all material facts; (b) the necessity for the buy-back; (c) the class of shares or securities intended to be purchased under the buy-back; (d) the amount to be invested under the buy-back; and (e) the time-limit for completion of buy-back”. The company therefore puts its own statement of why the buy-back is necessary on the record before the transaction happens, and that document is the contemporaneous evidence of purpose when the commercial genesis of the buy-back is later in issue. Section 68(5) then sets out the routes, in permissive words: the buy-back under sub-section (1) “may be” one of three things, “(a) from the existing shareholders or security holders on a proportionate basis; (b) from the open market; (c) by purchasing the securities issued to employees of the company pursuant to a scheme of stock option or sweat equity”. Those three are the whole of the field, because section 68 is the only source of the power and a route it does not name is a route the company does not have; the point is a construction of permissive words and not an express prohibition. So a buy-back that takes one shareholder out has to sit within one of them. Clause (a) is expressed as a proportionate basis, so on a selective exit from an unlisted company the route relied on is identified and the proportionality shown rather than left to inference.

What matters for tax is what happens to the shares afterwards, and on that the Act leaves no room. Section 68(7) reads:

“(7) Where a company buys back its own shares or other specified securities, it shall extinguish and physically destroy the shares or securities so bought back within seven days of the last date of completion of buy-back.”

The obligation is to extinguish and physically destroy, the period is seven days, and the period runs from the last date of completion of the buy-back. The shares do not become treasury stock, they are not held in abeyance, and the company does not end up owning an asset. Section 68(8) reinforces the point from the other direction by barring a further issue of the same kind of shares or other securities for six months, so the company cannot immediately reconstitute what it has destroyed. Its exceptions are narrow, and the bar does not apply to an issue “by way of a bonus issue or in the discharge of subsisting obligations such as conversion of warrants, stock option schemes, sweat equity or conversion of preference shares or debentures into equity shares”. Conversion and allotment under those instruments can therefore proceed within the six months; a fresh issue of the same kind of securities cannot.

Section 68(9) supplies a textual confirmation that is useful on a file. The register the company must maintain has to record “the date of cancellation of shares or securities, the date of extinguishing and physically destroying the shares or securities and such other particulars as may be prescribed”, so the Act requires two separate dates for two separate events. A statute that compels a company to date the cancellation of the very instrument it has just paid for is not describing an acquisition of property, and the register is contemporaneous evidence of the character of the transaction that the company can produce to an assessing officer.

Section 69 of the Companies Act, 2013, which is a different provision from the identically numbered buy-back charge in the Income-tax Act, 2025, carries the same logic into the balance sheet. Where a company purchases its own shares out of free reserves or the securities premium account, “a sum equal to the nominal value of the shares so purchased shall be transferred to the capital redemption reserve account and details of such transfer shall be disclosed in the balance sheet”, and the Act names one application for that reserve, paying up unissued shares to be issued to members as fully paid bonus shares. Capital has gone out of the company and has to be locked up to that extent. The reserve is a creditor-protection mechanism, and its presence in the accounts is a corporate-law marker that a buy-back is a return of capital and not a purchase of an asset.

Sanction of a scheme is the Tribunal’s other function, and it is not a route around section 68. Section 230(10) of the Companies Act, 2013 provides: “No compromise or arrangement in respect of any buy-back of securities under this section shall be sanctioned by the Tribunal unless such buy-back is in accordance with the provisions of section 68.” The cross-reference is to plain “section 68”, with no sub-section or clause qualifier. A scheme of compromise or arrangement that embeds a buy-back therefore has to satisfy section 68 on its own terms, and a company that failed a section 68 condition cannot cure it by reaching for Chapter XV.

For a listed company the SEBI (Buy-Back of Securities) Regulations, 2018 carry the condition in section 67(1) in almost the same words. Regulation 4(viii) reads: “A company shall not allow buy-back of its shares unless the consequent reduction of its share capital is effected.” The regulation is cast as a prohibition and section 67(1) as an absence of power, and only the Act can determine what a company has power to do; but both make the effectuation of the consequent reduction the condition of a lawful buy-back, so on a listed file the point can be established from either. Extinguishment is then compelled on every route. Regulation 11(i) governs the tender offer. Regulation 21 applies regulation 11 to the open market route through the stock exchange, subject to its own sub-regulations (ii) and (iii), and requires securities bought back during a month to be extinguished and physically destroyed in the presence of a merchant banker and the secretarial auditor on or before the fifteenth day of the succeeding month. Regulation 23 applies the tender offer extinguishment provisions mutatis mutandis to a buy-back through book building. No route lets the company keep the shares.

The SEBI period and the statutory period are different, and running them together is where a submission does itself real damage. Regulation 11(i) requires the company to extinguish and physically destroy the securities certificates bought back, in the presence of a registrar to an issue or the merchant banker and the secretarial auditor, “within fifteen days of the date of acceptance of the shares or other specified securities”, with a proviso that “the company shall ensure that all the securities bought-back are extinguished within seven working days of expiry of buy-back period”. That fifteen-day limb is not uniform even within sub-regulation (i): its Explanation reads “The aforesaid period of fifteen working days shall in no case extend beyond seven working days of expiry of buy-back period”, so the operative words set the period in days and the Explanation describes the same period in working days before capping it. Section 68(7) runs seven days from the last date of completion of the buy-back. The regulatory clock starts on acceptance and is capped by reference to expiry of the buy-back period in working days; the statutory clock starts on completion and runs in days. Regulation 11 is a listed-company procedure imposed by the regulator, and section 68(7) is the obligation on every company, listed or not. On a dematerialised holding there is a further refinement: regulation 11(ii) requires shares already dematerialised to be extinguished and destroyed in the manner specified under the SEBI (Depositories and Participants) Regulations, 1996 and the bye-laws, circulars and guidelines framed thereunder, because the destruction of a physical certificate is not what happens to a demat share.

All of this feeds the tax analysis directly, because the Income-tax Act does not define a buy-back for itself. It borrows. Clause (i) of the Explanation to section 115QA(1) defines “buy-back” as “purchase by a company of its own shares in accordance with the provisions of any law for the time being in force relating to companies”. Section 2(22)(f) of the 1961 Act reaches a payment made “in accordance with the provisions of section 68 of the Companies Act, 2013 (18 of 2013)”. Section 69(2) of the Income-tax Act, 2025, which carries the promoter’s additional income-tax, applies where a company purchases its own shares or other specified securities “in accordance with the provisions of section 68 of the Companies Act, 2013 (18 of 2013)”, and section 69(3)(c) of that Act takes the meaning of “specified securities” from Explanation 1 to section 68. The Explanation to section 46A of the 1961 Act takes “specified securities” from the Explanation to section 77A of the Companies Act, 1956.

The operative tax provisions of the first two regimes are each keyed to compliance with company law. Whether the company-law conditions were met is therefore a tax question and not merely a secretarial one, and a buy-back that is outside section 68 is not obviously inside the tax provisions that presuppose it. Exclusion (iv) in the long line of section 2(22), as it stood until its omission on 1 October 2024, still read “in accordance with the provisions of section 77A of the Companies Act, 1956 (1 of 1956)”, and the Explanation to section 46A still points to that repealed Act, while section 115QA’s own definition was re-keyed to company law generally in 2016. The Income-tax Act, 2025 is not keyed in the same way. The condition sits in section 69(2), which carries the promoter’s additional income-tax, and not in section 69(1), which deems capital gains on a purchase by a company of its own shares whether or not the purchase complies with section 68, so from 1 April 2026 a non-compliant purchase can leave the shareholder’s charge standing while, on the face of sub-section (2), the promoter’s layer does not attach. Part 3 returns to that asymmetry.

Regime one: section 115QA and the company’s own charge

Section 115QA(1) charges the company: “Notwithstanding anything contained in any other provision of this Act, in addition to the income-tax chargeable in respect of the total income of a domestic company for any assessment year, any amount of distributed income by the company on buy-back of shares from a shareholder shall be charged to tax and such company shall be liable to pay additional income-tax at the rate of twenty per cent on the distributed income”. The sub-section opens with a non-obstante clause, so within the field it occupies it displaces every other provision of the Act, and that opening is the Revenue’s most direct textual answer to anything a shareholder seeks to compute under section 46A on the same transaction. The charge is additional, so it sits on top of the company’s ordinary liability rather than in place of it. By sub-section (2) it is payable “notwithstanding that no income-tax is payable by a domestic company on its total income computed in accordance with the provisions of this Act”, so a company whose computed total income is nil or a loss pays it. By sub-section (4) it is the final payment of tax in respect of that income, and no credit for it may be claimed by the company or by any other person.

The charge falls on a domestic company and on no other. Sub-section (1) charges the tax in addition to the income-tax on “the total income of a domestic company”, sub-sections (2) and (3) use the same words, and so do sections 115QB and 115QC. A buy-back by a company that was not a domestic company therefore sat outside Chapter XII-DA altogether, and because section 10(34A) exempted only income on a buy-back “as referred to in section 115QA” the shareholder was outside the exemption too, so his position fell on section 46A read with section 48 on the actual consideration, subject, on a share other than a quoted share and for the years question 4 identifies, to section 50CA.

The charge is on a buy-back of shares and nothing else. Clause (i) of the Explanation defines “buy-back” as purchase by a company of its own shares, sub-section (1) charges distributed income on buy-back of shares, and section 10(34A) exempted income on account of buy back of shares. Section 68 of the Companies Act, 2013 permits a company to purchase its own “shares or other specified securities”, and the main limb of section 46A reaches both. So on the words a buy-back of specified securities other than shares, lawful under section 68, sat outside Chapter XII-DA in regime one: the company paid no additional income-tax on it, the holder had no exemption, and his position fell on section 46A on the actual consideration, subject to section 48. The Revenue’s answer is that clause (i) takes its meaning from a company-law provision whose own subject throughout is a purchase of shares or other specified securities, so an instrument bought back under section 68 answers the borrowed definition whatever it is; on the words the narrower reading is the stronger, and that is the firm’s view. The same question arises on the 2024 provisions, which Part 2 records as open.

The amount charged is “distributed income”, defined by clause (ii) of the Explanation to sub-section (1) as “the consideration paid by the company on buy-back of shares as reduced by the amount, which was received by the company for issue of such shares, determined in the manner as may be prescribed”. The deduction a shareholder would expect is absent: what he paid for the shares. The subtrahend is what the company received when it issued them, so a shareholder who bought in the secondary market at a high price got no relief at all, while the issue premium was deductible however long ago the company received it.

That is why rule 40BB of the Income-tax Rules, 1962 does the real work: it is the rule that supplies the subtrahend. Sub-rule (2) takes the amount actually received on subscription, including premium. Sub-rule (3) reduces it by any sum previously returned, with a proviso preserving the deduction where additional income-tax under section 115-O was paid on the sum returned. Sub-rule (4) values an ESOP or sweat equity share at fair market value computed under sub-rule (8) of rule 3, to the extent credited to share capital and share premium. Sub-rules (5) to (9) and (11) deal with amalgamation, demerger, shares issued as consideration for an asset or the settlement of a liability, conversion of a firm or succession of a proprietary concern, and conversion of another instrument. The last three sub-rules are where most disputes are decided. Sub-rule (10) deems the consideration for a share issued without consideration on the basis of existing shareholding to be “Nil”, which puts the whole buy-back price of a bonus share into distributed income. Sub-rule (12) applies first-in-first-out where a dematerialised share being bought back cannot be distinctly identified. Sub-rule (13) is the residual rule: in any other case the face value is deemed to be the amount received.

How far rule 40BB can be applied backwards is open. The words “, determined in the manner as may be prescribed” are the rule-making hook on which the rule hangs, and they entered clause (ii) of the Explanation by clause 58 of the Finance Act, 2016 with effect from 1 June 2016, which also re-keyed clause (i) from section 77A of the Companies Act, 1956 to “any law for the time being in force relating to companies”. For a buy-back between 1 June 2013 and 1 June 2016 the subtrahend was unprescribed, and on the reading this series takes the “amount received by the company for issue of such shares” fell to be determined on the unqualified words of the Explanation, with no rule 40BB machinery and in particular with no deemed-nil rule for bonus shares and no first-in-first-out rule. On a bonus-heavy or demat-pooled capital structure that is a materially different computation, and an assessment for an early year that applies rule 40BB as though it had always been there is open to challenge on that ground alone.

Most commentary gets the effective rate wrong, and the reason is structural. Neither the surcharge nor the cess on the section 115QA tax comes from the First Schedule to the Finance Act; both come from section 2 of the Finance Act for the year, so a submission that cites the First Schedule for the buy-back surcharge cites the wrong place. Section 2(4) of the Finance Act, 2017 provides that where tax has to be charged and paid under section 115QA (among other sections) “the tax shall be charged and paid at the rates as specified in those sections and shall be increased by a surcharge, for the purposes of the Union, calculated at the rate of twelve per cent. of such tax”. Sections 2(11) and 2(12) of the same Act then levy the Education Cess at two per cent and the Secondary and Higher Education Cess at one per cent on income-tax as increased by the applicable surcharge. The section 115QA tax is within that base because it is income-tax specified in sub-section (4), and the provisos to sub-sections (11) and (12) do not take it out: they disapply the cess only for tax deducted or collected under the sections mentioned in sub-sections (5) to (8), and sub-section (4) is not among them.

There is no single effective rate. On the Finance Act, 2017 the components are twenty per cent, plus twelve per cent surcharge on that tax, plus a combined three per cent cess on tax and surcharge, so the effective burden is 20 × 1.12 × 1.03, which is 23.072 per cent. Under the pattern in the Finance Act, 2025, where section 2(4) carries the same twelve per cent surcharge and section 2(12) levies a single Health and Education Cess of four per cent on income-tax specified in sub-sections (4) to (10) as increased by surcharge, the arithmetic is 20 × 1.12 × 1.04, which is 23.296 per cent. The two figures differ only in the cess, and both assume the same twelve per cent surcharge, which is the larger of the two multipliers: a year in which section 2(4) carried a different surcharge would produce neither of them. The figure in general circulation is 23.296, and for a buy-back in a year in which the cess was two plus one per cent it is simply wrong. For a financial year 2017-18 buy-back the rate is 23.072 per cent, and an order that prints 23.296 overstates the tax by 22.4 basis points of distributed income.

Section 2(1) of the Finance Act, 2017 is expressly tied to the assessment year commencing on 1 April 2017, but sub-section (4) carries no assessment-year or financial-year hook of its own: it is a free-standing charge on tax to be charged and paid under section 115QA. Since section 115QA(3) requires payment within fourteen days from the date of payment of the consideration to the shareholder, the practice is to apply the Finance Act in force when the liability arises, but the text does not say so. Where a buy-back straddles 31 March, attribute the surcharge to a named Finance Act and expect the attribution to be tested.

The rest of Chapter XII-DA is about collection. Section 115QB charges simple interest at one per cent for every month or part of a month on tax not paid within those fourteen days, running from the day after the last date on which the tax was payable until the date of actual payment. Section 115QC deems the principal officer and the company to be an assessee in default where the tax is not paid, with the whole of the Act’s collection and recovery machinery applying. The sunset proviso operates on sub-section (1) only, so sub-sections (2) to (5) remain in force for buy-backs that took place before 1 October 2024, which is why interest, recovery and the sub-section (5) bar on deduction are still live in assessments of pre-sunset years.

A worked example: unlisted company, buy-back in financial year 2017-18

The figures are round and the company is generic.

A private company issued 20,00,000 equity shares of Rs 10 each at Rs 50 per share by way of subscription, so it received Rs 10 of face value and Rs 40 of premium on each, its paid-up equity capital is Rs 2,00,00,000 and its free reserves exceed Rs 50,00,000. In financial year 2017-18 it buys back 20,000 of those shares at Rs 200 per share. The Rs 40,00,000 it pays is within twenty-five per cent of the aggregate of its paid-up capital and free reserves, which is the ceiling section 68(2)(c) of the Companies Act, 2013 sets, and within twenty-five per cent of its total paid-up equity capital, which is the measure the proviso to that clause substitutes where equity shares are bought back in a financial year.

Line	Working	Amount (Rs)
Consideration paid on buy-back	20,000 shares × Rs 200	40,00,000
Less: amount received by the company on issue of those shares, rule 40BB(2)	20,000 shares × Rs 50	10,00,000
Distributed income, clause (ii) of the Explanation to section 115QA(1)	40,00,000 less 10,00,000	30,00,000
Additional income-tax, section 115QA(1)	20 per cent of 30,00,000	6,00,000
Surcharge, section 2(4), Finance Act, 2017	12 per cent of 6,00,000	72,000
Tax and surcharge	6,00,000 plus 72,000	6,72,000
Education Cess, section 2(11), Finance Act, 2017	2 per cent of 6,72,000	13,440
Secondary and Higher Education Cess, section 2(12)	1 per cent of 6,72,000	6,720
Total payable by the company		6,92,160

The total reconciles with the effective rate: 30,00,000 × 23.072 per cent is Rs 6,92,160. The company must pay it within fourteen days of the date on which it paid the consideration, failing which interest under section 115QB runs at one per cent per month.

The shareholder bore nothing. He received Rs 40,00,000 and his income on the buy-back was exempt under section 10(34A). His own cost is irrelevant in both directions: if he had bought in the secondary market at Rs 180 a share he gets no credit for it, because the subtrahend is what the company received on issue and not what the shareholder paid. By section 115QA(4) the tax is the final payment in respect of that income, and by section 115QA(5) no deduction under any other provision is allowed to the company or to the shareholder in respect of the income charged or the tax on it. The bar on credit in sub-section (4) runs to “any other person”, and it bites hardest on a non-resident shareholder: the tax was the company’s, he bore it economically in a reduced price, and he had no Indian tax of his own to carry into a credit claim at home.

Change one input and the figure moves sharply. If the 20,000 shares had been bonus shares, sub-rule (10) of rule 40BB would deem the consideration received on their issue to be Nil, distributed income would be the whole Rs 40,00,000, and the tax at 23.072 per cent would be Rs 9,22,880 instead of Rs 6,92,160. That is the largest swing factor in a section 115QA computation, and it turns on a factual question about the origin of the share that the company’s own register, and rule 40BB(12) where the holding is pooled in demat form, is there to answer.

The shareholder under regime one: section 10(34A) and the proviso that ends it

Section 10(34A) was the other half of regime one. The company paid, and the shareholder was taken out of charge altogether. On the 2018 edition of the Act the clause reads:

“(34A) any income arising to an assessee, being a shareholder, on account of buy back of shares (not being listed on a recognised stock exchange) by the company as referred to in section 115QA;”

The exemption is for income arising to an assessee “being a shareholder”, so it is keyed to the capacity in which the receipt arises and not to the character of the shareholder. It exempts income arising “on account of buy back of shares”, which is wide enough to cover the whole of the receipt rather than a computed gain. Most importantly, it is defined by reference, “as referred to in section 115QA”, so the exemption’s reach moves with the reach of the company-level charge. The two provisions were built as a pair, and the parenthesis excluding listed shares in the text above tracks the same exclusion that section 115QA carried as originally enacted.

That reference matters on assessments of the transition years. Because clause (34A) exempts income on a buy-back “as referred to in section 115QA”, a buy-back that section 115QA does not reach is not within the exemption either, and the shareholder’s position then falls to be worked out on section 46A read with section 48. Two cases are on the face of the texts: a buy-back by a company that is not a domestic company, which the charge never reached, and a buy-back of specified securities other than shares. The exemption itself took no account of where the shareholder lived, so a non-resident was exempt on the same terms as a resident, no Indian withholding arose on him, and no treaty question had to be asked.

The exemption was switched off, not deleted. Clause 4(d) of the Finance (No. 2) Act, 2024 inserted the following proviso into clause (34A) with effect from 1 October 2024:

“Provided that this clause shall not apply with respect to any buy back of shares by a company on or after the 1st day of October, 2024.”

The proviso’s trigger is a buy-back “by a company on or after the 1st day of October, 2024”, while the section 115QA sunset proviso uses “takes place on or after” the same date. On any ordinary reading the two meet, but neither expression is defined and a buy-back that spans the date may require both to be construed. The proviso also leaves clause (34A) standing. The exemption continues to apply to a buy-back that took place before 1 October 2024 even where the assessment is made years later, which matters because assessment year 2025-26 straddles the two regimes: a shareholder in that year may have one buy-back receipt that is exempt and another that is dividend in full, and the return has to reflect both.

Open questions on the section 115QA regime

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.

1. Does “takes place” fix the same moment in all four of the 2024 trigger provisions?

Four provisions carry the 2024 switch and they use three formulae. The second proviso to section 115QA(1) and the proviso to section 46A both speak of a buy-back “that takes place on or after the 1st day of October, 2024”. The proviso to section 10(34A) speaks of a buy-back “by a company on or after” that date. Section 2(22)(f) carries no date of its own and operates from the commencement words of clause 3(a). None of the expressions is defined.

For the Revenue, the four limbs were enacted in one Act to work as a set, and the only event that can date a buy-back is its completion, which is what section 68(7) of the Companies Act, 2013 runs from. An announcement alone distributed nothing.

For the assessee, an offer authorised, opened, closed and tendered into before the date took place before it, “takes place” is not “is completed”, and a drafter who used three formulae in one clause-set meant the difference.

Where it stands: undecided. The firm’s view is that completion is the better reading, because the company’s own obligation under section 115QA(3) ran from payment of the consideration and not from the resolution. On a straddling file the dates are pleaded and proved, and nothing prevents the three formulae from splitting on the same facts.

2. Can rule 40BB supply the section 115QA subtrahend for a buy-back before 1 June 2016?

The words “, determined in the manner as may be prescribed” entered clause (ii) of the Explanation to section 115QA(1) by clause 58 of the Finance Act, 2016 with effect from 1 June 2016. Chapter XII-DA had been in force since 1 June 2013.

For the Revenue, rule 40BB is machinery. The figure to be found, the amount received by the company on issue, was in the Explanation from the start, and a rule prescribing how an existing figure is computed can be applied in any assessment made after it is notified. And on the facts that matter the rule changes nothing: nothing was received by the company when it issued a bonus share, so the subtrahend is nil on the unqualified words as much as it is under sub-rule (10), and sub-rule (13) does no more for a share issued at face value. The assessee has to show not merely that the rule cannot be applied but that the unqualified words produce a different figure on his own facts.

For the assessee, a rule has no application to a period before the rule-making power existed, and rule 40BB does not merely measure the amount received: sub-rule (10) deems it nil, sub-rule (12) imposes first-in-first-out on a pooled demat holding, and sub-rule (13) deems it to be face value. Those are substitutions for the statutory figure, not methods of finding it.

Where it stands: the date of the hook is not arguable. The firm’s view is that for an earlier buy-back the subtrahend falls on the unqualified words, so whether anything was received by the company on an issue of bonus shares is open on those words rather than closed by a deeming sub-rule. The question is live only where an early year is reopened, which is where it arises.

3. Which Finance Act supplies the surcharge and cess on a section 115QA liability?

Both come from section 2 of the Finance Act for the year, not from the First Schedule. Section 2(1) of each Finance Act is tied to a named assessment year, while sub-section (4), which carries the twelve per cent surcharge on tax charged and paid under section 115QA, has no year hook of its own.

For the Revenue, section 115QA(3) requires payment within fourteen days from the date of payment of the consideration, so the liability arises then and the Finance Act in force on that date governs it.

For the assessee, sub-section (4) sits in a section whose first sub-section is limited to one assessment year, and section 115QA(1) charges its tax “in addition to the income-tax chargeable in respect of the total income of a domestic company for any assessment year”, which locates the charge in an assessment year.

Where it stands: the text does not answer it. The firm’s view is that the Act in force when the fourteen-day obligation arises governs, because that is the only date section 115QA itself fixes. The choice is immaterial where two successive Finance Acts carry the same surcharge and the same cess, and it decides the figure wherever either of them differs, so a computation should name the Act it uses.

4. In regime one, did a shareholder who sold at less than his cost get a capital loss?

Section 46A was not switched off for a buy-back before 1 October 2024, and on its main limb the consideration and the cost were both the actual figures, so a price below cost produced a loss. Against that, section 115QA(4) made the company’s tax the final payment of tax in respect of that income, and section 115QA(5) allowed no deduction under any other provision “to the company or a shareholder in respect of the income which has been charged to tax under sub-section (1) or the tax thereon”.

For the Revenue, the receipt was taken out of the shareholder’s charge altogether and the transaction was taxed once, at the company’s end, with finality. A shareholder cannot extract a loss from a transaction whose income was never his, and sub-section (5) names him expressly. Sub-section (1) also opens “Notwithstanding anything contained in any other provision of this Act”, which on the Revenue’s reading displaces section 46A for the whole of the field the sub-section occupies, loss as well as gain.

For the assessee, sub-section (5) denies a deduction in respect of the income charged under sub-section (1), which is the company’s distributed income, and a capital loss computed under section 46A is neither that income nor a deduction against it. Clause (34A) exempted income arising, and a loss is not income. The non-obstante clause is addressed to the charge the sub-section creates, which is a charge on the company’s distributed income, and displaces other provisions only so far as they are inconsistent with that charge; a computation of the shareholder’s own capital loss is not inconsistent with it.

On any regime-one year that section 50CA reaches, it has to be cleared before that loss is treated as certain, and in regime one there is nothing for it to collide with. The main limb of section 46A is expressly subject to section 48, and section 50CA substitutes a prescribed fair market value as the full value of consideration for the purposes of section 48 where a share other than a quoted share is transferred for less than that value. Which regime-one years the section reaches is fixed by its own commencement and is established for the assessment year in question before the rest of this is argued.

The manner of determination the section requires is prescribed by rule 11UAA of the Income-tax Rules, 1962, inserted by notification 61/2017 dated 12 July 2017, whose commencement clause provides that the amending rules “shall come into force from the 1st day of April, 2018 and shall apply in relation to assessment year 2018-19 and subsequent years”. Both limbs have to be quoted together, because they are in tension: a rule in force from 1 April 2018 reaches a transfer made on or after that date, while an application in relation to assessment year 2018-19 reaches a transfer made in the financial year that began on 1 April 2017. For the Revenue the assessment-year limb governs, so the manner was prescribed for that earlier year too. For the assessee a rule expressed to come into force on a stated date cannot be applied to a transfer completed before it, and a section that operates on a value “determined in such manner as may be prescribed” has nothing to work on where no manner stood prescribed at the date of the transfer. That tension is a live argument for an assessee and not a settled point, and it is the same argument Part 3 records on the same notification.

Where the section does reach the year, the consideration taken into the section 46A computation in regime one was the actual price and not a deemed nil, so on a buy-back of a share other than a quoted share below the prescribed value the substitution reduces the loss, removes it, or turns it into a gain, and does so without meeting any competing deeming. Rule 11UAD, applied to the shareholder’s own facts, is checked first. The collision argued as question 12 in Part 2 is a feature of regime two alone; what regime one leaves is section 50CA operating without a competing deeming, which is the Revenue’s answer here before section 115QA is reached at all. Against it the assessee has the same transfer point as in the later regimes, that what the shareholder parts with is extinguished rather than passing to a holder who can enjoy it, and the further point that a price fixed by resolution and offer under the company law machinery is not an understated price. The Revenue answers both: the shareholder’s side of a buy-back is a transfer by him, which is what section 50CA is addressed to and what section 46A itself proceeds on, and a price the parties were free to fix by resolution is exactly what a substitution provision is for. Neither point is settled.

Where it stands: genuinely undecided, and material only for pre-sunset years still under assessment or appeal. Both provisions were drafted for the ordinary case, in which the price exceeded cost. The firm’s view is that the loss is available, for the reason the assessee gives: what sub-section (5) bars is a deduction against the company’s distributed income, and a capital loss computed under section 46A is not that. It is taken in the return with the ground stated, because it will be met with the non-obstante opening and sub-section (4). That is a view on section 115QA and not on the quantum. Where the shares were not quoted shares and the price was below the prescribed fair market value, section 50CA is run against what section 46A produces before sub-sections (4) and (5) are reached, and on the Revenue’s reading it cuts the loss down or reverses it; whether it does is the point left open above. The prescribed figure is computed on those files either way, because an assessing officer who takes that reading will compute from it.

On a live file: a buy-back before 1 October 2024

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

Fix the date first. Establish the date on which the buy-back took place, as distinct from the resolution, the announcement and the payment. That date selects the regime.

Prove the extinguishment. In TPS Infrastructure the Tribunal accepted the legal position but restored the matter to the assessing officer to verify that the shares had in fact been extinguished by reduction of paid-up capital, so the point must be provable on the file. Obtain the register required by section 68(9) of the Companies Act, 2013, which must carry both the date of cancellation and the date of extinguishing and physically destroying the shares. Obtain with it the explanatory statement that accompanied the notice of the special resolution, which section 68(3) requires to state the necessity for the buy-back. Preserve evidence that both dates fell within the seven days section 68(7) allows, the return filed under section 68(10) within thirty days, the capital redemption reserve entry, and the movement in paid-up capital between two balance sheets.

Rebuild the distributed income. Take the consideration paid, then the subtrahend, the amount the company received on issue of those shares under rule 40BB of the Income-tax Rules, 1962. Check the origin of every share: sub-rule (10) deems the consideration on a bonus share to be nil, sub-rule (12) applies first-in-first-out to a pooled demat holding, and sub-rule (13) deems the face value. For a buy-back before 1 June 2016, check whether rule 40BB has been applied to a year for which the subtrahend was not yet prescribed.

Check the rate and the clock. Attribute the surcharge to section 2(4) of the named Finance Act and the cess to that Act’s cess sub-sections, not to the First Schedule, and verify that year’s surcharge and cess before accepting any effective percentage. Confirm payment within fourteen days of the date the consideration was paid, and compute interest under section 115QB where it was not.

The shareholder. Confirm the exemption under section 10(34A) for a buy-back before 1 October 2024, and check whether the assessment year carries receipts from both sides of that date. For a listed company, check the first proviso to section 115QA(1): whether a public announcement was made on or before 5 July 2019 under the SEBI (Buy-Back of Securities) Regulations, 2018.

Where the shareholder claims a loss in regime one. Where a shareholder tendered at less than his cost and a capital loss is claimed under section 46A, establish the commencement of section 50CA for the assessment year in question, then apply rule 11UAD to his own facts, then test the share against the Explanation to section 50CA, and then, where the section is in play, compute the fair market value prescribed through rule 11UAA at the date of transfer. The figure goes on the file either way, because an assessing officer who reads section 50CA as reaching the transfer will compute from it, and question 4 is pleaded on both limbs.

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 2 takes the regime that began on 1 October 2024: the deemed dividend under section 2(22)(f), the nil-consideration proviso to section 46A and the capital loss it manufactures, what a shareholder can actually do with that loss, the double lock against any deduction, and withholding under sections 194 and 195. Read it next at Buy-back, 1 October 2024 to 31 March 2026: dividend and a stranded loss.

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.