Income Tax on Buyback of Shares in India

Income tax on share buybacks in India is governed by Section 115QA, which requires companies to pay 20% tax on distributed income arising from the buyback. Distributed income is calculated as the difference between the buyback price and the issue price of the shares.

Key points:

• Tax liability is borne by the company undertaking the buyback.
• The applicable tax rate under Section 115QA is 20%.
• Distributed income = Buyback price − Issue price.
• Example: Buyback at ₹500 and issue price of ₹300 results in distributed income of ₹200 per share.
• If 1,00,000 shares are repurchased, the distributed income equals ₹2 crore.
• Tax payable in this example is ₹40 lakh.
• AY 2026–27 ITR forms require disclosure of buyback details, including shares repurchased, consideration paid, and tax liability.

A buyback of shares occurs when a company repurchases its own shares from existing shareholders, generally at a price determined by the company. The transaction reduces the number of shares available in the market.

A lower number of outstanding shares may affect financial metrics such as earnings per share (EPS) and can alter the company's capital structure.

Companies may undertake buybacks for several financial and strategic reasons.

Common reasons for buybacks

• Returning excess cash to shareholders
• Optimising capital structure
• Reducing the number of outstanding shares
• Enhancing shareholder value
• Improving earnings per share (EPS)

Strategic considerations

The Income Tax Return forms (ITR forms)for AY 2026–27 require additional disclosures relating to share buybacks.

Companies must report the following information:

Example of disclosure

The company must disclose these figures and the corresponding tax liability in its return filing.

Section 115QA governs the taxation of share buybacks in India.

Under this provision, companies undertaking a buyback must pay tax on distributed income arising from the transaction. Distributed income is calculated by subtracting the issue price from the buyback price.

Distributed income formula

Example

Tax is calculated on the distributed income amount.

Tax computation under Section 115QA follows a structured process.

Step 1: Calculate distributed income

Subtract the issue price from the buyback price.

Formula:

Distributed income = Buyback price − Issue price

Step 2: Calculate aggregate distributed income

Multiply the distributed income per share by the total number of shares repurchased.

Step 3: Apply the tax rate

Apply the Section 115QA tax rate of 20% to the aggregate distributed income.

Worked example

Section 115QA prescribes a flat tax rate of 20% on distributed income arising from share buybacks.

The tax rate applies irrespective of:

• Holding period of the shares
• Whether shares are listed or unlisted
• Category of shareholder

Key implications

How is tax calculated on a buyback? Example

The following example illustrates the complete tax calculation process.

The company must pay tax on the aggregate distributed income generated through the buyback transaction.

Income tax on buyback of shares in India is governed by Section 115QA, which imposes a 20% tax on distributed income. The tax liability rests with the company undertaking the buyback rather than the shareholder.

Companies must also comply with disclosure requirements introduced for AY 2026–27, including reporting buyback consideration, the number of shares repurchased, and applicable tax liability. Understanding these provisions can help investors interpret buyback announcements and their tax implications.

Investments in securities markets are subject to market risks. Please read all scheme-related documents carefully before investing.