In this guide
Which tax year does this cover?
AY 2026-27 covers income earned from 1 April 2025 to 31 March 2026. The rules below apply to a buyback of shares by a domestic company completed during that period. Buybacks on or after 1 April 2026 fall under the Income-tax Act, 2025 and should be reviewed separately.
For a domestic company buyback on or after 1 October 2024, the consideration received by a shareholder is generally treated as deemed dividend under Section 2(22)(f) of the Income-tax Act, 1961. For capital-gains calculation, Section 46A treats the consideration as nil. The result can be dividend income and a separate capital loss.
How is the buyback amount reported and taxed?
Report the buyback amount as dividend income under “Income from Other Sources” in the relevant ITR. It is generally taxed at the rates applicable to your income; the final tax depends on your circumstances.
You do not subtract the cost of the shares from the dividend amount. Instead, the cost may give rise to a capital loss, reported separately.
| Item | General treatment for a qualifying buyback |
|---|---|
| Buyback consideration | Report as dividend income under Section 2(22)(f) |
| Capital-gains consideration | Deemed nil under Section 46A |
| Cost of shares bought back | May give rise to a capital loss |
| Capital-loss set-off | Against eligible capital gains, not salary or dividend income |
For example, if shares cost ₹1,00,000 and the company buys them back for ₹1,40,000 during FY 2025-26, you generally report ₹1,40,000 as dividend income and a separate capital loss based on the ₹1,00,000 cost. Do not report only the ₹40,000 difference or net the cost against the dividend.
The holding period determines whether the loss is short-term or long-term. Use the applicable ITR utility and your acquisition records to classify it correctly.
How do you report it in your ITR?
The notified ITR-2 and ITR-3 forms for AY 2026-27 include a field for dividend income under Section 2(22)(f) in Schedule OS and a separate buyback capital-loss field in Schedule CG. The forms require the corresponding dividend income to be reported before claiming the buyback loss.
- ITR-2 may apply to an individual or HUF without income taxable under “Profits and Gains of Business or Profession,” if the other form conditions are met.
- ITR-3 may apply if you have business or professional income.
Check the notified form and current portal utility before filing. TaxClear’s guide to choosing an ITR form for AY 2026-27 and online ITR filing guide explain the filing steps.
Can you set off or carry forward the capital loss?
Capital losses cannot be set off against salary or dividend income. In general:
- A short-term capital loss can be set off against short-term or long-term capital gains.
- A long-term capital loss can be set off only against long-term capital gains.
- An eligible unadjusted loss can be carried forward for up to eight assessment years, if the loss return is filed by the applicable due date under Section 139(1).
Records to keep
Keep the company’s buyback offer and payment statement, bank records, broker contract notes, demat or acquisition records showing the purchase dates and costs, and tax-credit information for any TDS. Reconcile the gross buyback amount with your records and claim TDS credit only when it is correctly reflected against your PAN.
A foreign-company buyback or a transaction involving a non-resident may have different tax and treaty considerations, so review those facts separately.
Frequently asked questions
Is the entire amount received in a qualifying buyback treated as dividend?
For a domestic company buyback on or after 1 October 2024, the consideration is generally deemed dividend under Section 2(22)(f).
Can I deduct the share cost from the dividend?
No. Report the dividend and any capital loss separately.
Can the capital loss reduce my salary or dividend income?
No. Capital losses are generally set off against capital gains, subject to the short-term and long-term rules.
What if I have no capital gains to set off the loss against?
You may carry forward an eligible loss for up to eight assessment years if you file the loss return by the applicable Section 139(1) due date.
Does this article cover buybacks on or after 1 April 2026?
No. This article covers buybacks completed in FY 2025-26. Review the rules under the Income-tax Act, 2025 for later transactions.
