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Income Tax on Buy-Back Of Shares

Income Tax on Buy-Back of Shares

Buyback of shares refers to repurchasing the shares by a company that they issued. The company usually buys the shares at the market price or higher. This is generally done by the companies to give the money back to the shareholders and regain their ownership. Section 115QA and Section 10(34A) of the Income Tax Act, 1961 define the buyback provisions.

Income Tax on Buy-back of Shares in Hands of Company

The domestic company distributing its income through the buy-back of shares is liable to pay tax @ 20% plus a Surcharge @ 12% and Educational Cess @ 4% i.e 23.30% on the Distributed Income.

It becomes important to understand the definition of Distributed Income. "distributed income" means the consideration paid by the company on the buy-back of shares as reduced by the amount, which was received by the company for the issue of such shares, determined in the manner as may be prescribed.

Thus Distributed Income =

Consideration of Buy Back Less Amount Received By Company at the time of issue of shares

Amount Received by Company at Time of Issue of Shares may differ in some exception circumstances like :

  • In Case Shares are Issued as ESOP – The amount received by the company is the fair value of ESOPs as per Rule 3(8) to the extent credited to the share capital and security premium account

  • In case of an Amalgamated Company / Demerged / Resulting Company – The amount received by the amalgamating or in case of a demerged company or resulting company the proportionate amount received by the erstwhile company in the ratio of their assets.

Income Tax on Buy-back of Shares in Hands of Shareholders

By section 10(34A), any income in the hands of shareholders on which tax is to be paid under section 115QA is exempt.

Due Date for Payment of Tax

Tax on Buy-Back is to be paid within 14 days from the date of payment of any amount to the shareholders.


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