How a share buyback is taxed depends first on the date the company bought the shares back. For a buyback on or after 1 April 2026 (tax year 2026-27 onwards), section 69 of the Income-tax Act, 2025 taxes the shareholder on a capital gain: the buyback price minus the cost of the shares. Promoters pay an additional tax on top, which takes their effective rate on most gains to 22% or 30%. A buyback between 1 October 2024 and 31 March 2026 was taxed very differently, as a dividend on the full amount received, with the cost pushed into a separate capital loss.
Shareholders who tendered in both periods, and companies planning a buyback this year, keep running into the same three questions. Which regime applies? Is this shareholder a promoter for tax purposes? What happens to the capital losses created by the 2024-26 buybacks? The answers below follow the law as it stands on 2 November 2026.
Three regimes, decided by the date of the buyback
The treatment has changed twice in two years, so start by placing the buyback in the right column.
| Date of buyback | Law | What the shareholder is taxed on | What happens to the shareholder's cost |
|---|---|---|---|
| Before 1 October 2024 | Section 115QA of the Income-tax Act, 1961 | Nothing further; the company paid the buyback tax | Not relevant to the shareholder's tax |
| 1 October 2024 to 31 March 2026 | Sections 2(22)(f) and 46A of the 1961 Act | The full payment, as dividend, at normal rates | Becomes a capital loss, because the sale consideration is deemed to be nil |
| From 1 April 2026 (tax year 2026-27 onwards) | Section 69 of the Income-tax Act, 2025 | Consideration minus cost, as capital gains; promoters pay additional tax | Deducted directly from the buyback price |
The middle regime came from the Finance (No. 2) Act, 2024. The Finance (No. 2) Bill, 2024 added sub-clause (f) to section 2(22) to treat any payment by a company on purchase of its own shares as dividend, from 1 October 2024. It also added a proviso to section 115QA so that the company-level tax would not apply to buybacks on or after that date, and barred any deduction of expenses against this dividend under section 57.
How section 69 works out the gain from tax year 2026-27
The Union Budget 2026-27 described the change as aligning buyback taxation with the capital gains regime. The Finance Ministry note on Budget 2026 tax reforms adds that promoters face a differential rate. The result is section 69 of the Income-tax Act, 2025.
Sub-section (1) charges the difference between the consideration received on the buyback and the cost of acquisition as capital gains. The gain is treated as arising in the tax year in which the company buys the shares back, and the charge is subject to section 72, the loss set-off provision. Three practical consequences follow:
- Cost comes off first. A shareholder who tenders shares bought at ₹450 for ₹500 pays tax on ₹50, not on ₹500 as in the 2024-26 period.
- The holding period matters again. Whether the gain is short-term or long-term decides the rate, and for promoters whether the additional tax applies at all.
- Normal capital gains rates apply. Short-term gains on equity shares sold with securities transaction tax (STT) fall under section 196 of the 2025 Act at 20%. Long-term gains under section 197 of the 2025 Act are taxed at 12.5%; section 198 deals separately with long-term gains on STT-paid listed equity.
Short-term gains on unlisted shares are not covered by section 196, so they are added to income and taxed at the shareholder's normal rate. The same applies to any other short-term asset that falls outside sections 196 to 198.
Who counts as a promoter for the additional tax
Sub-section (3) of section 69 has its own definition, and it is wider than many shareholders expect:
- Listed company: a promoter as defined in the SEBI (Buy-Back of Securities) Regulations, 2018.
- Any other company: a promoter under section 2(69) of the Companies Act, 2013, or any person who holds, directly or indirectly, more than 10% of the company's shares.
The second limb catches investors who never thought of themselves as promoters. An angel investor holding 12% of a private company, or a holding company that owns 15% through a subsidiary, is a promoter for section 69 even though no shareholders' agreement or filing calls it one. Indirect holdings count, so work through the group chart rather than reading only the register of members.
The additional tax also applies only where the buyback is made in accordance with section 68 of the Companies Act, 2013. RSM's note on changes between the Finance Bill and Finance Act, 2026 records that this condition was added when the Bill became law, and that the Act received assent on 30 March 2026.
The additional tax rates and the effective burden
Section 69(2) adds a further income-tax over and above the normal tax on the gain. The rates depend on the type of gain and on whether the promoter is a domestic company.
| Type of gain | Normal rate | Additional tax: domestic company promoter | Additional tax: other promoter | Effective rate before surcharge and cess |
|---|---|---|---|---|
| Short-term, STT-paid equity (section 196) | 20% | 2% | 10% | 22% or 30% |
| Long-term (section 197 or 198) | 12.5% | 9.5% | 17.5% | 22% or 30% |
| Short-term, unlisted shares | Normal rate of the holder | Nil | Nil | Normal rate only |
The last row follows from the wording: the additional tax table refers only to gains under sections 196, 197 and 198. KPMG's Budget 2026-27 financial services note reads it the same way and states the 22% and 30% effective rates. "Other promoter" covers individuals, HUFs, firms, LLPs and foreign companies alike.
Worked example: a private company buyback in December 2026
Illustration. Pinecrest Tooling Private Limited completes a buyback under section 68 of the Companies Act in December 2026 at ₹600 per share. Three shareholders tender:
- Ravi, the founder, holds 40% and tenders 20,000 shares subscribed at ₹10 in 2015. He is a promoter. Consideration ₹1,20,00,000 less cost ₹2,00,000 gives a long-term gain of ₹1,18,00,000. Normal tax at 12.5% is ₹14,75,000 and the additional tax at 17.5% is ₹20,65,000, so ₹35,40,000 in all, or 30% of the gain.
- Meena, an angel investor with 8%, tenders 2,000 shares bought at ₹150 in 2019. At 8% she is not a promoter. Consideration ₹12,00,000 less cost ₹3,00,000 gives a long-term gain of ₹9,00,000, taxed at 12.5%: ₹1,12,500.
- Kavya, an employee, tenders 500 shares bought at ₹400 in March 2026, held for about nine months. Consideration ₹3,00,000 less cost ₹2,00,000 gives a short-term gain of ₹1,00,000. She pays at her normal rate, and there would be no additional tax even if she were a promoter, because unlisted short-term gains sit outside the section 69(2) table.
All figures are before surcharge and cess. If Ravi were a domestic company holding the same stake, its additional tax would be 9.5% (₹11,21,000), for a total of ₹25,96,000 or 22% of the gain.
Compare Meena under the 2024-26 regime. Had the same buyback happened in December 2025, she would have reported the full ₹12,00,000 as dividend. At a 30% slab that is ₹3,60,000 of tax, against ₹1,12,500 now. Her ₹3,00,000 cost would have become a long-term capital loss, useful only if she had capital gains to absorb it.
Capital losses left behind by the 2024-26 buybacks
Many shareholders who tendered between 1 October 2024 and 31 March 2026 are still carrying those losses. The proviso to section 46A of the Income-tax Act, 1961 deems the consideration received on such a buyback to be nil. The capital gains computation therefore produces a loss equal to the cost of the shares, short-term or long-term depending on how long they were held.
Three points decide whether that loss survives:
- The dividend must be in the same return. The ITR-2 validation rules for AY 2026-27 include Rule 600, which asks the filer to report the dividend at Sl. No. 1a(iii) of Schedule OS if a buyback loss is claimed in Schedule CG. A return claiming the loss without the matching dividend will be flagged.
- The return must be filed on time. The e-filing portal's FAQs on set-off and carry forward of losses state that a loss return filed late under section 139(3) read with section 80 of the 1961 Act cannot carry the loss forward.
- The old set-off rules continue. The same FAQs say short-term and long-term capital losses brought forward from years under the 1961 Act can be set off against capital gains under the 2025 Act in the manner the old Act allowed. Under those rules a long-term capital loss can only absorb long-term gains.
This gives the 2026 regime a practical twist. A shareholder carrying a long-term loss from a 2025 buyback can set it against the long-term gain on a buyback in tax year 2026-27. Shareholders tendering in a second buyback of the same company should look up the loss schedule of their earlier returns before computing tax for this year.
Holding periods and dates that change the answer
Holding periods were last reset for transfers on or after 23 July 2024. For those transfers under the 1961 Act, the Department's note on tax on short-term capital gains treats listed shares as short-term if held for 12 months or less and unlisted shares if held for 24 months or less. Under the 2026 regime that classification decides both the base rate and, for promoters, whether section 69(2) applies at all.
Before relying on the numbers, settle these facts for each tendering shareholder:
- The buyback date. The gain arises in the tax year of the buyback, so a scheme approved in March 2026 but completed in April 2026 falls under section 69.
- Acquisition date and cost. Keep the allotment letter, transfer deed or contract note. With cost now deductible, a missing purchase record costs real tax.
- Promoter status on the 10% test. For an unlisted company, add direct and indirect holdings, including shares held through companies or trusts the person controls.
- Section 68 compliance. The promoter's additional tax is tied to a buyback made under section 68 of the Companies Act, 2013, so the board or special resolution and the filings under that section are part of the tax file.
- Brought-forward capital losses. Check the earlier returns, particularly those covering FY 2024-25 and FY 2025-26, for buyback losses that can now absorb the gain.
Surcharge and cess on buyback gains follow their own rules, and the Finance Act, 2026 changed the surcharge position from the Bill. Confirm the current rate on the additional tax from the Finance Act, 2026 text before finalising a promoter's computation, and recheck section 69 for later amendments when the buyback falls in tax year 2027-28 or after.
