Income Tax Act 1961 | Section 115QA
Section 115QA: Tax on Distributed Income from Share Buy-backs
Updated: 27 October 2026 | India
Section 115QA of the Income-tax Act, 1961 governed additional income-tax payable by domestic companies on distributed income arising from buy-back of shares. A major change took effect on 1 October 2024: section 115QA no longer applies to buy-backs taking place on or after that date. Instead, the shareholder-side tax rules apply under section 2(22)(f) and the amended section 46A.
Meaning and scope of Section 115QA
Section 115QA forms part of Chapter XII-DA, dealing with special provisions relating to tax on distributed income of a domestic company for buy-back of shares. Under the former regime, a domestic company purchasing its own shares was generally liable to additional income-tax on the distributed income, independently of the tax otherwise payable on its total income.
Buy-back means purchase by a company of its own shares under applicable company law, including section 68 of the Companies Act, 2013. Distributed income means the consideration paid by the company for the buy-back less the amount received by the company on issue of those shares, determined as prescribed under Rule 40BB of the Income-tax Rules, 1962. The amount originally paid by a particular shareholder to acquire shares is not necessarily the amount the issuing company received.
When did Section 115QA apply?
| Period | Principal treatment |
|---|---|
| From 1 June 2013 | Company-level buy-back tax introduced, initially covering unlisted shares. |
| From 5 July 2019 | Scope expanded to listed shares, subject to the statutory transitional exception for certain buy-backs publicly announced on or before 5 July 2019. |
| Up to 30 September 2024 | Qualifying domestic-company buy-backs generally subject to 20% additional tax on distributed income, plus applicable surcharge and cess. |
| On or after 1 October 2024 | No company-level section 115QA tax. Shareholder consideration is generally deemed dividend under section 2(22)(f), with related capital-gains computation under section 46A. |
Explanation of subsections (1) to (5)
Section 115QA(1): charge of additional income-tax
For transactions within its historical scope, a domestic company paid additional income-tax at 20% on distributed income. The provisos address the earlier listed-share announcement exception and exclude buy-backs taking place on or after 1 October 2024.
Section 115QA(2): tax even where ordinary company tax is nil
For a covered buy-back, the additional tax was payable even if the company had no income-tax payable on its total income computed under the Act.
Section 115QA(3): payment within fourteen days
The company and its principal officer were responsible for depositing the tax with the Central Government within 14 days from payment of the buy-back consideration to the shareholder.
Section 115QA(4): finality of tax
The additional tax paid on distributed income was treated as final payment in respect of that income, with no further credit claim for the company or another person.
Section 115QA(5): prohibition on deduction
No deduction under another provision was permitted to the company or shareholder in respect of income charged under section 115QA(1) or the tax on it.
Illustration of historical company-level buy-back tax
Suppose a company paid Rs. 15,00,000 to buy back shares and had originally received Rs. 10,00,000 on their issue, as determined under the applicable rules. Distributed income would be Rs. 5,00,000. The basic section 115QA tax at 20% would be Rs. 1,00,000, before applicable surcharge and cess. This is an illustration of the regime applicable to a qualifying pre-October 2024 buy-back, not the present treatment of new buy-backs.
Taxation of buy-backs from 1 October 2024
Under section 2(22)(f), payments received by shareholders on buy-back of shares by a domestic company are treated as dividend income for the new regime. The exemption formerly available under section 10(34A) does not apply to buy-backs on or after 1 October 2024. Applicable shareholder tax rates and withholding provisions depend on the shareholder and circumstances.
The amended section 46A treats the full value of consideration as nil for the corresponding capital-gains computation, potentially giving rise to a capital loss equal to the allowable cost of acquisition. Its set-off and carry-forward remain subject to applicable capital-loss rules. This treatment should not be confused with the earlier section 115QA distributed-income calculation.
Related provisions and compliance
- Section 115QB: interest at 1% per month or part thereof for delayed payment of tax due under section 115QA.
- Section 115QC: deems the company or principal officer an assessee in default for non-payment of tax under section 115QA, enabling collection and recovery provisions.
- Section 10(34A): historical shareholder exemption for buy-backs covered by section 115QA, restricted for buy-backs on or after 1 October 2024.
- Section 46A: capital-gains rules for buy-back of shares and specified securities, amended for the post-September 2024 regime.
- Rule 40BB: prescribed method for determining the amount received by a company on issue of shares for historical distributed-income calculations.
Legislative background
Chapter XII-DA was inserted by the Finance Act, 2013 with effect from 1 June 2013. The Finance Act, 2016 updated the definition of buy-back and the prescribed determination of the issue amount. The Finance (No. 2) Act, 2019 extended the levy to listed-share buy-backs, with a transitional protection for certain earlier announcements. The Finance (No. 2) Act, 2024 inserted the sunset proviso effective 1 October 2024 and changed shareholder taxation.
Frequently asked questions
Is Section 115QA applicable to buy-backs in 2026?
No. Section 115QA(1) expressly excludes buy-backs taking place on or after 1 October 2024. Earlier liabilities may still be relevant.
Who pays tax on a domestic-company buy-back after September 2024?
The shareholder is generally taxed on the deemed dividend under section 2(22)(f), rather than the company paying section 115QA buy-back tax.
What was the Section 115QA tax rate?
The statutory basic rate was 20% of distributed income, plus applicable surcharge and cess, for buy-backs covered by the earlier regime.
Official legislation and guidance
- Income Tax Department: Section 115QA (historical text)
- Income-tax Act, 1961 as amended by Finance (No. 2) Act, 2024 (PDF)
- Finance (No. 2) Act, 2024 (official gazette PDF)
- Income Tax Department: Domestic company guidance
- Income Tax Department: Capital gains and buy-back treatment
This article explains the Income-tax Act, 1961 and its amendments for general information. For an actual transaction, verify the applicable assessment year, law and facts, including any subsequent legislation.