Income-tax Act, 1961 | Chapter XII-DA

Section 115QB: Interest for Non-Payment of Buy-Back Tax by a Company

Section 115QB provides for simple interest when a domestic company or its principal officer fails to pay the additional income-tax payable under Section 115QA within the prescribed period. Following the changes effective from 1 October 2024, the provision remains important for outstanding liabilities arising from earlier buy-backs.

Legal update: Under the Finance (No. 2) Act, 2024, Section 115QA does not apply to a buy-back of shares taking place on or after 1 October 2024. Accordingly, Section 115QB does not create a new company-level buy-back tax liability for such transactions, but unpaid tax from earlier applicable buy-backs may still attract interest and recovery action.

What Section 115QB provides

Where the principal officer of a domestic company and the company fail to pay all or part of the tax on distributed income referred to in Section 115QA(1) within the time allowed by Section 115QA(3), the unpaid amount attracts simple interest at 1% for every month or part of a month. The interest period starts on the day immediately following the last date on which the tax was payable and ends on the date the tax is actually paid.

This is a statutory interest charge on delayed payment of applicable buy-back tax. It is separate from the underlying tax liability.

Definitions and related legal provisions

Section 115QA(1): Tax on distributed income: Historically imposed additional income-tax on a domestic company on distributed income arising from qualifying share buy-backs. The statutory base rate was 20%, with applicable surcharge and cess. A statutory exception applied to certain listed-share buy-backs publicly announced on or before 5 July 2019.
Section 115QA(3): Payment deadline: Required the principal officer and company to pay applicable buy-back tax to the Central Government within 14 days from the date of payment of consideration to shareholders.
Distributed income: Broadly, the consideration paid for the buy-back minus the amount received by the company on issue of those shares, determined under the applicable rules, including Rule 40BB.
Principal officer: A person covered by the definition in Section 2(35) of the Income-tax Act, which includes specified managerial officers and certain persons treated as principal officers after the statutory notice.
Section 115QC: Assessee in default: Provides for default consequences and application of the Act's tax collection and recovery provisions where tax under Section 115QA is unpaid.

Rate, period and example of interest under Section 115QB

Component	Rule
Interest rate	1% simple interest per month or part thereof
Amount	Unpaid buy-back tax under Section 115QA
Starting date	Day after the Section 115QA(3) due date
Ending date	Actual payment date
Part-month	Counted as a full month for the interest rate

Illustration: Assume a company had Rs. 5,00,000 of unpaid Section 115QA tax, due on 14 August 2024, and paid it on 20 September 2024. Interest runs from 15 August through 20 September, covering two calendar months or parts. Illustrative interest is Rs. 5,00,000 × 1% × 2 = Rs. 10,000. This example assumes the tax amount and due date have already been correctly determined.

Where part of the tax has been paid, interest should be computed on the amount outstanding during the relevant periods. Actual computations should be checked against payment dates and applicable assessment records.

Impact of the buy-back taxation change from 1 October 2024

Section 39 of the Finance (No. 2) Act, 2024 introduced a further proviso to Section 115QA(1), excluding buy-backs taking place on or after 1 October 2024. The associated shareholder exemption under Section 10(34A) also ceased to apply to buy-backs from that date. Instead, qualifying consideration is treated as deemed dividend under Section 2(22)(f), with the corresponding capital-gains treatment governed by Section 46A and other applicable provisions.

Practical distinction: For a qualifying buy-back before 1 October 2024, unpaid company-level buy-back tax can still give rise to Section 115QB interest. For a buy-back on or after that date, the previous Section 115QA company-level charge does not arise; the shareholder-side rules must instead be examined.

Practical compliance points

Confirm the actual date of the buy-back and whether Section 115QA applied.
Verify the amount of distributed income and the correct tax, surcharge and cess.
Check the 14-day statutory deadline and actual tax payment dates.
Compute Section 115QB interest on unpaid tax, including every part-month.
Review possible default and recovery consequences under Section 115QC.
Retain supporting buy-back resolutions, payment records, tax challans and calculations.

Frequently asked questions

What is the interest rate under Section 115QB?

Simple interest of 1% for each month or part of a month on unpaid tax covered by Section 115QA.

Does Section 115QB apply to buy-backs after 30 September 2024?

It does not impose interest on a new Section 115QA tax charge for buy-backs occurring on or after 1 October 2024, because that company-level tax no longer applies to those buy-backs. Earlier unpaid liabilities may remain relevant.

When does interest start?

On the day immediately after the last date on which tax under Section 115QA(3) was required to be paid.

Is Section 115QB the same as Section 115P?

No. Section 115QB concerns delayed company-level buy-back tax under Section 115QA; Section 115P concerns delayed dividend distribution tax under Section 115-O.

Official legislative references

This article explains the provisions of the Income-tax Act, 1961, including historical liabilities, and is for general information. Verify the law governing the relevant transaction date and seek professional advice for a specific case.