Sections 69 & 196Capital Gainswas Section 46A & 115QA in IT Act 1961

Taxation in Case of Buyback of Securities

Complete tax treatment of share buybacks — both in the hands of the company and the shareholder, including the special additional tax that applies when the seller is a promoter.

Last updated: 8 July 2026

Tax Treatment in the Hands of the Company

No tax is applicable on the company when it buys back its own shares or specified securities.

Tax Treatment in the Hands of the Shareholder

Under Section 69 of the Income Tax Act 2025, any capital gain arising out of a buyback is taxable in the hands of the shareholders.

Buyback of shares is treated as extinguishment of rights — hence taxed under Capital Gains and not as dividend
The buyback price is treated as the Fair Value of Consideration for computing the capital gain
The cost of acquisition is the price at which the shares or securities were originally purchased
The period of holding runs from the date of purchase of the share/security until the buyback date

Capital Gain Computation

Particulars	Amount
Fair Value of Consideration (Buy Back Price)	XXX
Less: Cost of Acquisition (Cost of Purchase)	(XXX)
LTCG / STCG	XXX

Whether the gain is LTCG or STCG depends on the holding period. Listed equity shares held for more than 12 months qualify as LTCG; unlisted shares/securities require 24 months.

Additional Tax When Seller is a Promoter

If the buyback is made under Section 68 of the Companies Act, 2013 and the holder of the share/specified securities is a promoter of the company, an additional income tax under Section 196 of the IT Act 2025 is levied on top of the regular capital gains tax.

Particulars	Additional Rate — Domestic Company Promoter	Additional Rate — Other than Domestic Company
STCG under Section 196 arising out of transfer of securities via buyback	2%	10%
LTCG under Sections 197 & 198 arising out of transfer of securities via buyback	9.5%	17.5%

Surcharge @ flat 12% and Health & Education Cess @ 4% are applicable on the additional tax computed above
Effective additional tax rates (excluding surcharge and cess): Domestic Company — 22%; Other than Domestic Company — 30%

The additional tax under Section 196 is over and above the regular capital gains tax rate applicable to the promoter on the STCG or LTCG. It is not a replacement — both apply.

Who Qualifies as a 'Promoter'?

A person is considered a 'promoter' for this purpose if they fall under any of the following definitions:

Any person defined under Section 2(k) of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018
Any person who is directly or indirectly holding more than 10% of the shareholding in the company
Persons defined in Section 2(69) of the Companies Act, 2013

Even if a person is not formally declared as a promoter in SEBI filings, holding more than 10% of shares (directly or indirectly) triggers the promoter-level additional tax under Section 196.

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Disclaimer: This analysis is based on the Income Tax Act 2025 (Tax Year 2026-27) and is for educational purposes only. Tax laws are subject to change. Always verify with a Chartered Accountant or tax advisor before making decisions.

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