Buyback Tax 2026: Why Your ₹1 Lakh Share Buyback Now Gets Taxed

If you've held shares of a company that recently announced a buyback — Infosys, TCS, Wipro or any of the dozens of mid-caps that do it — you may be in for a rude surprise. That buyback cheque you were expecting? It's now taxable in your hands, and for many investors in the higher brackets, more than 35% of it can vanish to the taxman.

This is not a hypothetical. For any buyback where the company pays out on or after 1 October 2024, the entire tax treatment has been flipped upside down. Earlier, the company paid a flat buyback distribution tax and you received the money tax-free. Now, the amount you receive is treated as a deemed dividend and taxed at your slab rate — while your original cost of purchase is booked as a capital loss.

In this guide I'll walk you through exactly how the share buyback tax 2026 rules work, show you a full worked example with real ₹ figures so you can calculate your genuine take-home, and flag the one mistake that can cost you thousands if you file carelessly.

Key Takeaways

• For buybacks paid on or after 1 Oct 2024, the full buyback amount is taxed as a deemed dividend at your income-tax slab rate — not tax-free anymore.
• The company no longer pays buyback distribution tax; the burden has shifted entirely to you, the shareholder.
• Your cost of acquisition of the tendered shares becomes a capital loss, which you can set off against other capital gains.
• TDS at 10% applies for resident shareholders if the total dividend/buyback income crosses ₹5,000 in the year (₹10,000 from FY 2025-26 for certain payers).
• High-bracket investors (30% + surcharge + cess) can effectively lose 35–39% of a buyback receipt.
• The capital loss can be carried forward for 8 years — don't forget to report it even if you have no gains to set off this year.

What exactly changed in the share buyback tax 2026 regime?

Let's get the history straight, because the confusion here is enormous.

Before 1 October 2024: When a company bought back its shares, it paid a Buyback Distribution Tax of 20% (plus surcharge and cess) under Section 115QA. The shareholder received the buyback proceeds completely exempt under Section 10(34A). This is why buybacks became such a popular way for IT giants to return cash — promoters and retail investors both took home the money without a further tax hit.

From 1 October 2024 onwards: The Finance (No. 2) Act, 2024 abolished the company-level buyback tax and shifted the entire burden to shareholders. Now:

• The whole buyback consideration you receive is treated as a dividend (deemed dividend under Section 2(22)(f)) and added to your income under "Income from Other Sources."
• It is taxed at your applicable slab rate — 5%, 20%, 30% and so on, plus surcharge and cess.
• Your original cost of acquisition of those shares is treated as a capital loss (short-term or long-term depending on holding period), which you can set off or carry forward.

In short: what used to be tax-free money is now fully taxable, and the sting is sharpest for people in the 30% bracket.

How is a buyback taxed in your hands now — step by step?

Here's the exact sequence the Income Tax Act now follows when a listed company buys back your shares after 1 Oct 2024:

1. Full buyback amount = deemed dividend. The entire consideration you receive (number of shares × buyback price) is treated as dividend income. Not the gain — the full amount.
2. Added to "Income from Other Sources". This gets clubbed with your salary, business income, interest etc. and taxed at your slab rate.
3. TDS is deducted. The company/registrar deducts TDS at 10% (Section 194) for resident shareholders if your total dividend income exceeds the threshold. For NRIs, TDS is generally 20% plus surcharge and cess under Section 195.
4. Cost of acquisition = capital loss. Since the sale value for capital gains purposes is deemed to be nil, your entire purchase cost becomes a capital loss.
5. Set off / carry forward the loss. A short-term capital loss can be set off against any capital gain; a long-term capital loss can only be set off against long-term capital gains. Unused losses carry forward for 8 assessment years.

Notice the mismatch: your income (the dividend) is taxed at slab rate, but your loss (the cost) is a capital loss that can only offset capital gains. If you have no capital gains this year, you can't use that loss immediately against your salary. That's the trap most people miss.

A fully worked example: Rahul's Infosys-style buyback

Let's make this concrete. Meet Rahul, a Bengaluru software engineer earning ₹18 LPA, firmly in the 30% tax bracket under the old regime.

A few years ago he bought 100 shares of a large-cap company at ₹1,000 each — total investment ₹1,00,000. The company now announces a buyback at ₹1,600 per share, and Rahul's full lot is accepted.

Buyback proceeds: 100 × ₹1,600 = ₹1,60,000

Under the OLD rules (pre-Oct 2024)

• Company paid buyback tax; Rahul received ₹1,60,000 tax-free.
• Take-home: ₹1,60,000. Clean and simple.

Under the NEW rules (share buyback tax 2026)

Now the full ₹1,60,000 is deemed dividend and taxed at Rahul's 30% slab.

• Tax on deemed dividend: ₹1,60,000 × 30% = ₹48,000
• Add 4% health & education cess: ₹48,000 × 4% = ₹1,920
• Total tax on the buyback: ₹49,920
• Net cash in hand: ₹1,60,000 − ₹49,920 = ₹1,10,080

But there's a silver lining. Rahul's original cost of ₹1,00,000 becomes a capital loss. Suppose Rahul also booked a ₹1,00,000 long-term capital gain on some equity mutual funds this year (assuming these shares were held long-term).

• He can set off ₹1,00,000 LTCL against that ₹1,00,000 LTCG.
• Equity LTCG above ₹1.25 lakh is taxed at 12.5%. By wiping out that ₹1,00,000 gain, he saves roughly ₹12,500 in capital gains tax.

So Rahul's effective position: he paid ₹49,920 on the dividend but saved ₹12,500 through the loss set-off — a net tax cost of about ₹37,420 on a ₹1,60,000 receipt.

The critical point: if Rahul had no capital gains to absorb that loss, he'd pay the full ₹49,920 now and carry the ₹1,00,000 loss forward — hoping to use it within 8 years. Not everyone can.

Want to test different holding scenarios and slabs? Run your salary and other income through our Income Tax Calculator first, so you know your exact marginal rate before the buyback hits.

Old vs New: how much a ₹1 lakh–₹5 lakh buyback actually costs you

The table below shows net take-home on the full buyback amount across different slab rates, ignoring any capital-loss set-off (worst case). This is the reality most retail investors face if they don't have offsetting gains.

Buyback amount received	5% slab (net)	20% slab (net)	30% slab (net)	30% + 15% surcharge (net)
₹1,00,000	₹94,800	₹79,200	₹68,800	₹64,120
₹2,00,000	₹1,89,600	₹1,58,400	₹1,37,600	₹1,28,240
₹3,50,000	₹3,31,800	₹2,77,200	₹2,40,800	₹2,24,420
₹5,00,000	₹4,74,000	₹3,96,000	₹3,44,000	₹3,20,600

All figures include 4% cess. Surcharge column assumes 15% (income above ₹1 crore). Actual surcharge depends on your total income.

The message is blunt: at the 30% slab, a ₹1 lakh buyback nets you roughly ₹68,800 before any loss adjustment. That's why the tax question now matters as much as the buyback price itself.

Should you even tender your shares in a buyback now?

This is where genuine strategy comes in. Before the 2024 change, tendering was almost always attractive because the money was tax-free. Now you need to think harder.

When tendering still makes sense

• You're in a low tax bracket. At 5% or even 20%, the tax bite is manageable, and buybacks are often priced at a healthy premium to market.
• You have capital gains to offset. If you're already sitting on booked LTCG or STCG, the buyback loss can shield those gains and reduce your overall tax.
• The buyback premium is large. A 25–40% premium over market can still leave you ahead even after tax.

When you should think twice

• You're in the 30% bracket with no offsetting gains. You'll pay full slab tax now and can only carry the loss forward.
• You could instead sell in the open market and pay LTCG at just 12.5% (above the ₹1.25 lakh exemption) — often far cheaper than 30% slab tax on the buyback.

Common mistake: Assuming a buyback is "free money" like it was before. In many cases, a 30%-bracket investor is better off selling in the open market — paying 12.5% LTCG — than tendering into the buyback and paying 30%+ slab tax on the full amount. Always compare the two routes with your actual numbers before you click "tender."

How to report a buyback in your ITR — and claim the loss

Reporting this correctly is where a lot of people slip up. Follow this checklist for your FY 2024-25 / FY 2025-26 return:

1. Report the deemed dividend under "Income from Other Sources." Cross-check the figure against your Form 26AS and AIS (Annual Information Statement), where the company will have reported the payout.
2. Claim TDS credit. The 10% TDS deducted (Section 194) shows up in 26AS. Make sure you claim it against your total tax liability.
3. Report the capital loss. In Schedule CG, show the tendered shares with sale consideration as nil and cost of acquisition as your actual purchase price. Classify as short-term or long-term based on holding period.
4. Set off the loss against eligible capital gains for the year — LTCL only against LTCG; STCL against both STCG and LTCG.
5. Carry forward unused loss. File your return before the due date — carry-forward of losses is only allowed if you file on time.

Pro tip: Even if you have zero capital gains this year, still file the capital loss. That ₹1,00,000 loss can quietly sit in your return for up to 8 years and wipe out a big equity gain later. Skipping it because "there's nothing to set off" is throwing away a future tax shield.

How does this interact with advance tax and TDS?

Because buyback income is now slab-taxed, a large buyback can push your total tax liability high enough to trigger advance tax obligations. TDS at 10% rarely covers your full liability if you're in the 30% bracket.

For example, on Rahul's ₹1,60,000 buyback, TDS of ₹16,000 (10%) is deducted — but his actual tax is ₹49,920. He owes the balance ₹33,920, and if he doesn't pay it via advance tax instalments, he'll face interest under Sections 234B and 234C.

If you're a salaried person with mostly TDS-covered income, a sudden buyback can quietly create an advance-tax shortfall. Freelancers and those with variable income should be especially careful — our detailed guide on advance tax due dates and avoiding 234B & 234C penalties walks through the instalment schedule.

What about NRIs holding Indian shares?

For NRIs, the buyback amount is likewise treated as deemed dividend, but TDS is deducted under Section 195 — typically at 20% plus surcharge and cess, subject to relief under the applicable Double Taxation Avoidance Agreement (DTAA).

Many treaties cap dividend tax at 10–15%, so NRIs should furnish a Tax Residency Certificate (TRC) and Form 10F to claim the lower treaty rate. If you're an NRI, read our full breakdown of how India shares and property are taxed for NRIs in 2026 before tendering.

Building a smarter portfolio around the new rule

The buyback change is a reminder that tax-efficient investing beats chasing headline returns. A few practical moves:

• Harvest losses deliberately. If you know a buyback loss is coming, book some capital gains in the same year to soak it up.
• Compare routes before acting. Open-market sale (12.5% LTCG) versus buyback (slab rate) — always model both.
• Keep long-term wealth in SIPs. Systematic equity investing still enjoys the concessional 12.5% LTCG rate. See what disciplined investing builds using our SIP Calculator.
• Rebalance with tax in mind. Use our full suite of free financial calculators to plan withdrawals and switches so you don't get ambushed by slab-rate taxation.

If you're weighing whether to stay invested or exit, plug your expected returns into the Lumpsum Investment Calculator and compare against safer options using the FD Calculator. And to see how inflation erodes that "tax-free" money you thought you were getting, the Inflation Calculator is a sobering reality check.

Frequently Asked Questions

Is share buyback taxable in 2026 for shareholders?

Yes. For any buyback where payment is made on or after 1 October 2024, the entire buyback amount is taxed in the shareholder's hands as a deemed dividend at their applicable income-tax slab rate. The old exemption under Section 10(34A) no longer applies.

How is the buyback amount taxed — as capital gain or dividend?

The full buyback consideration is taxed as deemed dividend under "Income from Other Sources" at your slab rate. Separately, your original cost of acquisition is treated as a capital loss, which you can set off against capital gains or carry forward for 8 years.

How much TDS is deducted on a buyback for residents?

For resident shareholders, TDS of 10% is deducted under Section 194 if the total dividend/buyback income exceeds the threshold (₹5,000, raised to ₹10,000 from FY 2025-26 for certain payers). This TDS is adjustable against your final tax liability when you file your ITR.

Can I set off my buyback capital loss against salary income?

No. A capital loss can only be set off against capital gains — long-term loss against long-term gains, short-term loss against both. It cannot be adjusted against salary or business income. Unused losses carry forward for up to 8 assessment years.

Is it better to sell in the market or tender in a buyback now?

It depends on your tax bracket. If you're in the 30% slab and have no capital gains to offset, selling in the open market and paying 12.5% LTCG is often cheaper than tendering and paying 30%+ slab tax. Always compare both routes with your actual numbers.

How are NRIs taxed on Indian share buybacks in 2026?

NRIs are taxed on the deemed dividend with TDS under Section 195, generally at 20% plus surcharge and cess, subject to lower rates under the relevant DTAA. Submitting a TRC and Form 10F is essential to claim treaty benefits.

Do I need to pay advance tax because of a buyback?

Possibly. Since the buyback is slab-taxed and 10% TDS rarely covers a 30%-bracket liability, a large buyback can create an advance-tax shortfall. Pay the balance through advance tax instalments to avoid interest under Sections 234B and 234C.

The bottom line

The share buyback tax 2026 rules have quietly rewritten the maths of one of India's most popular capital-return tools. What used to be tax-free money is now slab-rate income, and the capital-loss offset — while helpful — only works if you have gains to absorb it. For a 30%-bracket investor, a ₹1 lakh buyback can shrink to under ₹69,000 before any relief.

The practical takeaway: never tender into a buyback on autopilot. Compare it against an open-market sale, check whether you have capital gains to soak up the loss, watch your advance-tax exposure, and report everything cleanly in your ITR — including the loss, even when you have nothing to set it off against today.

Do the arithmetic before you decide. Start with your marginal rate on our Income Tax Calculator, model the alternatives with the AlarmDaddy calculator suite, and if you're unsure about your specific situation, reach out to us or learn more about how AlarmDaddy helps Indian investors make tax-smart decisions. A little planning here can be the difference between keeping ₹1.1 lakh and losing ₹49,920 to a rule you didn't see coming.

Image credit: Scrabble Series Income Tax — ccPixs.com, via flickr (BY 2.0), sourced from Openverse.