Buyback Proceeds Now Taxable as Dividend: How to Report it in Your ITR
Buyback Proceeds Now Taxable as Dividend: How to Report it in Your ITR
The Compliance shift
Up to 30 September 2024, buyback is tax-free for shareholders. The company paid a buyback tax under section 115QA, and the amount received by shareholders was exempt under section 10(34A).
The Finance Act, 2024 reversed this. For any buyback by a domestic company on or after 1 October 2024, Section 115QA was withdrawn, and the entire consideration received by the shareholder is now deemed a dividend under Section 2(22) (f) & taxed in the shareholder’s hands at their applicable slab rate.
| Period | Treatment |
| Up to 30 September 2024 | Exempt for shareholder company paid tax under section 115QA |
| 1 October 2024 – 31 March 2026 | Entire proceeds taxed as deemed dividend (slab Rate) |
Why This Hurts More Than It Looks?
Under the new rule, the full buyback consideration is treated as dividend income. No deduction is allowed for the cost of acquisition against this dividend income.
Your cost of acquisition becomes a capital loss, because the sale consideration for capital gains purpose is deemed to be nil under section 46A.
So now one buyback transaction has two separate consequences in your return:
- Dividend income (full buyback amount): taxed immediately at slab rate, no deductions.
- Capital loss (equal to your cost of acquisition): usable only against future capital gains, not against the dividend income itself or any other head.
Step-by-Step: Reporting in the ITR
You cannot rely on auto-populated AIS/Form 26AS data alone for this manual entries are required in two separate schedules.
Step 1: Schedule OS (Income from Other Sources)
- Report the entire buyback proceeds as dividend income.
- Claim credit for any TDS deducted by the company (visible in Form 26AS/AIS).
- No expense or cost can be claimed against this income.
Step 2: Schedule Capital Gains
- Create a fresh entry for the shares buyback.
- Set Full value of consideration to ₹0.
- Enter your actual cost of acquisition.
- This will generate a capital loss equal to your cost of acquisition short-term or long-term depending on your holding period.
Step 3: Carry forward, if needed
- Any capital loss not set off in the same year can be carried forward for up to 8 assessment years, provided the ITR is filed by the original due date.
- Short-term capital loss can be set off against both STCG and LTCG; long-term capital loss can only be set off against LTCG.
- The loss cannot be adjusted against the dividend income itself, or against any other head of income.
Which ITR Form Applies
Because this situation involves both dividend income (Schedule OS) and a capital loss (Schedule CG), ITR-1 cannot be used. You will need:
ITR-2: for salaried individuals/HUFs with capital gains and no business income.
ITR-3: if you also have business or professional income.
Example:
Suppose you acquired shares with a cost of acquisition of ₹1,450 each, and received ₹1,900 per share in the buyback, with ₹190 TDS deducted.
Schedule OS: Report ₹1,900 as dividend income; claim ₹190 TDS credit.
Schedule CG: Consideration = ₹0, cost of acquisition = ₹1,450 →Short term/Long term capital loss of ₹1,450, available to carry forward.