Income-tax Act, 1961 | Chapter XII-DA
Section 115QC: When a Company Is Deemed to Be an Assessee in Default
Section 115QC deals with the consequences when a domestic company or its principal officer fails to pay the additional tax on distributed income arising from a qualifying buy-back of shares under Section 115QA.
Text and meaning of Section 115QC
"If any principal officer of a domestic company and the company does not pay tax on distributed income in accordance with the provisions of section 115QA, then, he or it shall be deemed to be an assessee in default in respect of the amount of tax payable by him or it and all the provisions of this Act for the collection and recovery of income-tax shall apply."
The provision identifies a company and its principal officer as persons who may be treated as assessees in default when the tax payable under Section 115QA is not paid. The normal statutory mechanisms for collection and recovery of income-tax then become applicable.
Important legal definitions
Assessee in default
A person treated under the Act as having failed to discharge a statutory tax-payment obligation. In the context of Section 115QC, the consequence arises from non-payment of tax payable under Section 115QA.
Domestic company
Broadly, a company qualifying as a domestic company under Section 2(22A) of the Income-tax Act, including an Indian company and certain other companies satisfying the prescribed arrangements for declaration and payment of dividends in India.
Principal officer
Section 2(35) defines a principal officer to include specified managerial officers and persons treated as principal officers in accordance with that provision.
Distributed income and buy-back
Under Section 115QA, distributed income generally meant the consideration paid by a company for buying back its shares less the amount received by the company on issue of those shares, determined under the prescribed rules. The provision was subject to statutory exceptions and its application changed over time.
How Sections 115QA, 115QB and 115QC work together
| Provision | Purpose |
|---|---|
| Section 115QA | Imposed additional tax on distributed income from qualifying domestic-company share buy-backs under the former regime; payment was due within 14 days of payment of consideration. |
| Section 115QB | Provides simple interest at 1% per month or part of a month for delay in paying tax due under Section 115QA. |
| Section 115QC | Deems the company or principal officer to be an assessee in default where tax under Section 115QA is not paid and enables statutory recovery provisions. |
Buy-back tax changes effective 1 October 2024
The Finance (No. 2) Act, 2024 amended the buy-back taxation framework. For a buy-back of shares on or after 1 October 2024, the additional company-level tax under Section 115QA is not charged. Instead, consideration received by a shareholder is generally treated as deemed dividend under Section 2(22)(f), with associated capital-gains treatment under Section 46A and withdrawal of the earlier exemption under Section 10(34A) for such transactions.
Consequently, the default mechanism under Section 115QC is relevant principally where tax was payable under Section 115QA for an earlier buy-back and remains unpaid. The date and nature of the buy-back, applicable exemptions, and the law for the relevant period must be checked.
Consequences of default and recovery
- The unpaid Section 115QA liability may be recovered using applicable income-tax collection and recovery provisions.
- Interest for delayed payment may be payable separately under Section 115QB.
- Recovery action is subject to the statutory procedures, remedies and facts of the particular case; Section 115QC itself does not set a separate fixed penalty rate.
Illustrative example
Suppose a domestic company incurred a valid Section 115QA liability from a buy-back completed before 1 October 2024 and did not pay that tax within the statutory 14-day period. Section 115QB may impose interest for the delay. Under Section 115QC, the company and relevant principal officer may also be treated as assessees in default for recovery of the unpaid tax. This example assumes the transaction was taxable under the law applicable at the time.
Frequently asked questions
Does Section 115QC apply to buy-backs after 30 September 2024?
It does not create a company-level Section 115QA tax liability for buy-backs taking place on or after 1 October 2024. Earlier unpaid liabilities may still be subject to its recovery mechanism.
Is interest payable in addition to recovery action?
Yes, where the conditions of Section 115QB are met, interest may arise independently of the recovery consequences under Section 115QC.
Does Section 115QC itself impose the buy-back tax?
No. Section 115QA governed the charge; Section 115QC addresses default in paying tax due under that section.
Official statutory references
- Income Tax Department: Section 115QC
- Income Tax Department: Section 115QA (historical text)
- Income Tax Department: Domestic company and buy-back tax updates
- Income-tax Act, 1961 as amended by Finance (No. 2) Act, 2024
Last reviewed: 27 October 2026. This page is a general explanation of the Income-tax Act, 1961 and historical buy-back tax liabilities; transaction-specific advice may require examination of the applicable assessment year and subsequent legislation.