My client tendered shares in a buy-back. How is he taxed under section 46A, and does it make a difference that the buy-back closed after 1 October 2024?
It makes all the difference, and the dividing line is the date the buy-back takes place: for a buy-back BEFORE 1 October 2024 the main limb of s.46A applies normally, and for a buy-back ON OR AFTER 1 October 2024 the proviso inserted by Act No. 15 of 2024 deems the consideration to be nil. The main limb says that where a shareholder receives any consideration from a company for purchase of its own shares or other specified securities, then, subject to s.48, the difference between the cost of acquisition and the value of consideration received is deemed to be the capital gains of the year in which the company purchased them. The proviso says that where the shareholder receives consideration "of the nature referred to in sub-clause (f) of clause (22) of section 2" in respect of a buy-back "that takes place on or after the 1st day of October, 2024", then "for the purposes of this section, the value of consideration received by the shareholder shall be deemed to be nil".
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2024-10-01, reported as Section 46A of the Income-tax Act, 1961, as amended up to 2025. It bears on section 46A, section 48, section 2(22)(f), section 115QA, section 10(34A), section 57, section 70, section 71(3), section 74 of the Income Tax Act 1961, in Capital Gains and How Tax Law Is Read matters.
The arithmetic of the proviso is the whole point and it is easy to state and easy to get wrong. Consideration is deemed nil; cost of acquisition is not touched; s.46A is expressly "subject to the provisions of section 48". So the computation for a post-30-September-2024 buy-back is NIL minus cost, which is a capital loss equal to the entire cost of the shares — long-term or short-term according to the period of holding, and available for set-off and carry-forward under the ordinary rules in ss.70 and 74 — but NOT under s.71, because s.71(3) bars a capital loss from being set off against income under any other head. The loss therefore cannot be applied against the very s.2(22)(f) dividend the same buy-back produces; that dividend is taxed in full while the loss waits for a capital gain to absorb it. Meanwhile the money itself is not untaxed: it is a deemed dividend in the shareholder's hands under s.2(22)(f), taxable at slab or applicable rates as income from other sources with no deduction except the interest permitted by the proviso to s.57. That is a genuinely harsh combination for a shareholder whose shares had a high cost — the receipt is fully taxed as dividend while the cost produces only a capital loss that may take years to absorb. The second thing to notice is the trigger word. The proviso operates on the date the buy-back "takes place", not on the date of the board resolution, the public announcement, the tender or the assessment year. Where a buy-back straddled the date, that is the fact to pin down. Third, the proviso is confined to consideration "of the nature referred to in sub-clause (f) of clause (22) of section 2" — a payment on purchase by a company of its own shares in accordance with s.68 of the Companies Act, 2013. Section 46A itself is wider: it also covers "other specified securities", which the Explanation defines by reference to the Explanation to s.77A of the Companies Act, 1956. A buy-back of something that is not shares within s.2(22)(f) is therefore still governed by the main limb, with real consideration and an ordinary capital gain.
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Section 46A, as transcribed from the departmental page stamped Year 2025 and confirmed word for word on the page stamped Year 2024 (No. 2), reads: "46A. Where a shareholder or a holder of other specified securities receives any consideration from any company for purchase of its own shares or other specified securities held by such shareholder or holder of other specified securities, then, subject to the provisions of section 48, the difference between the cost of acquisition and the value of consideration received by the shareholder or the holder of other specified securities, as the case may be, shall be deemed to be the capital gains arising to such shareholder or the holder of other specified securities, as the case may be, in the year in which such shares or other specified securities were purchased by the company: Provided that where the shareholder receives any consideration of the nature referred to in sub-clause (f) of clause (22) of section 2 from any company, in respect of any buy-back of shares, that takes place on or after the 1st day of October, 2024, then for the purposes of this section, the value of consideration received by the shareholder shall be deemed to be nil. Explanation.—For the purposes of this section, 'specified securities' shall have the meaning assigned to it in Explanation to section 77A of the Companies Act, 1956 (1 of 1956)." A footnote against the proviso reads: "Ins. by the Act No. 15 of 2024, w.e.f. 1-10-2024." The Year 2023 page prints the section without any proviso.
Not a judgment. The statutory position is that s.46A deems the difference between the cost of acquisition and the value of the consideration received on a company's purchase of its own shares or other specified securities to be the shareholder's capital gains of the year of purchase, subject to s.48; and that by a proviso inserted by Act No. 15 of 2024 with effect from 1 October 2024, where the consideration is of the nature referred to in s.2(22)(f) and the buy-back takes place on or after 1 October 2024, the value of the consideration is deemed to be nil for the purposes of the section.
Not a judgment; no judicial reasoning is stated. The legislative sequence is visible on the departmental pages themselves: the section was inserted with effect from 1 April 2000 and carried no proviso through the pages stamped Year 2003, 2007, 2009, 2015, 2019 (No. 2) and 2023; the proviso appears for the first time on the pages stamped Year 2024 (No. 2) and Year 2025, with the footnote dating it to 1 October 2024.
Provided that where the shareholder receives any consideration of the nature referred to in sub-clause (f) of clause (22) of section 2 from any company, in respect of any buy-back of shares, that takes place on or after the 1st day of October, 2024, then for the purposes of this section, the value of consideration received by the shareholder shall be deemed to be nil.
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Handle my notice → Ask a CA on WhatsAppIt makes all the difference, and the dividing line is the date the buy-back takes place: for a buy-back BEFORE 1 October 2024 the main limb of s.46A applies normally, and for a buy-back ON OR AFTER 1 October 2024 the proviso inserted by Act No. 15 of 2024 deems the consideration to be nil. The main limb says that where a shareholder receives any consideration from a company for purchase of its own shares or other specified securities, then, subject to s.48, the difference between the cost of acquisition and the value of consideration received is deemed to be the capital gains of the year in which the company purchased them. The proviso says that where the shareholder receives consideration "of the nature referred to in sub-clause (f) of clause (22) of section 2" in respect of a buy-back "that takes place on or after the 1st day of October, 2024", then "for the purposes of this section, the value of consideration received by the shareholder shall be deemed to be nil". This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 46A, section 48, section 2(22)(f), section 115QA, section 10(34A), section 57, section 70, section 71(3), section 74 of the Income Tax Act 1961. It is reported as Section 46A of the Income-tax Act, 1961, as amended up to 2025. The arithmetic of the proviso is the whole point and it is easy to state and easy to get wrong. Consideration is deemed nil; cost of acquisition is not touched; s.46A is expressly "subject to the provisions of section 48". So the computation for a post-30-September-2024 buy-back is NIL minus cost, which is a capital loss equal to the entire cost of the shares — long-term or short-term according to the period of holding, and available for set-off and carry-forward under the ordinary rules in ss.70 and 74 — but NOT under s.71, because s.71(3) bars a capital loss from being set off against income under any other head. The loss therefore cannot be applied against the very s.2(22)(f) dividend the same buy-back produces; that dividend is taxed in full while the loss waits for a capital gain to absorb it. Meanwhile the money itself is not untaxed: it is a deemed dividend in the shareholder's hands under s.2(22)(f), taxable at slab or applicable rates as income from other sources with no deduction except the interest permitted by the proviso to s.57. That is a genuinely harsh combination for a shareholder whose shares had a high cost — the receipt is fully taxed as dividend while the cost produces only a capital loss that may take years to absorb. The second thing to notice is the trigger word. The proviso operates on the date the buy-back "takes place", not on the date of the board resolution, the public announcement, the tender or the assessment year. Where a buy-back straddled the date, that is the fact to pin down. Third, the proviso is confined to consideration "of the nature referred to in sub-clause (f) of clause (22) of section 2" — a payment on purchase by a company of its own shares in accordance with s.68 of the Companies Act, 2013. Section 46A itself is wider: it also covers "other specified securities", which the Explanation defines by reference to the Explanation to s.77A of the Companies Act, 1956. A buy-back of something that is not shares within s.2(22)(f) is therefore still governed by the main limb, with real consideration and an ordinary capital gain. If it applies to you, the first step is this: Fix the date the buy-back TOOK PLACE from the company's records — the extinguishment of the shares — and put it at the top of the computation. Everything else in this area follows from which side of 1 October 2024 it falls.
Section 46A, as transcribed from the departmental page stamped Year 2025 and confirmed word for word on the page stamped Year 2024 (No. 2), reads: "46A. Where a shareholder or a holder of other specified securities receives any consideration from any company for purchase of its own shares or other specified securities held by such shareholder or holder of other specified securities, then, subject to the provisions of section 48, the difference between the cost of acquisition and the value of consideration received by the shareholder or the holder of other specified securities, as the case may be, shall be deemed to be the capital gains arising to such shareholder or the holder of other specified securities, as the case may be, in the year in which such shares or other specified securities were purchased by the company: Provided that where the shareholder receives any consideration of the nature referred to in sub-clause (f) of clause (22) of section 2 from any company, in respect of any buy-back of shares, that takes place on or after the 1st day of October, 2024, then for the purposes of this section, the value of consideration received by the shareholder shall be deemed to be nil. Explanation.—For the purposes of this section, 'specified securities' shall have the meaning assigned to it in Explanation to section 77A of the Companies Act, 1956 (1 of 1956)." A footnote against the proviso reads: "Ins. by the Act No. 15 of 2024, w.e.f. 1-10-2024." The Year 2023 page prints the section without any proviso. The matter was decided on 2024-10-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. Not a judgment. The statutory position is that s.46A deems the difference between the cost of acquisition and the value of the consideration received on a company's purchase of its own shares or other specified securities to be the shareholder's capital gains of the year of purchase, subject to s.48; and that by a proviso inserted by Act No. 15 of 2024 with effect from 1 October 2024, where the consideration is of the nature referred to in s.2(22)(f) and the buy-back takes place on or after 1 October 2024, the value of the consideration is deemed to be nil for the purposes of the section.
Not a judgment; no judicial reasoning is stated. The legislative sequence is visible on the departmental pages themselves: the section was inserted with effect from 1 April 2000 and carried no proviso through the pages stamped Year 2003, 2007, 2009, 2015, 2019 (No. 2) and 2023; the proviso appears for the first time on the pages stamped Year 2024 (No. 2) and Year 2025, with the footnote dating it to 1 October 2024. In the words reproduced by the source cited on this page: "Provided that where the shareholder receives any consideration of the nature referred to in sub-clause (f) of clause (22) of section 2 from any company, in respect of any buy-back of shares, that takes place on or after the 1st day of October, 2024, then for the purposes of this section, the value of consideration received by the shareholder shall be deemed to be nil."
It was decided by the CBDT Circulars & Instructions on 2024-10-01 and is reported as Section 46A of the Income-tax Act, 1961, as amended up to 2025. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 46A, section 48, section 2(22)(f), section 115QA, section 10(34A), section 57, section 70, section 71(3), section 74, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. Not a judgment. The statutory position is that s.46A deems the difference between the cost of acquisition and the value of the consideration received on a company's purchase of its own shares or other specified securities to be the shareholder's capital gains of the year of purchase, subject to s.48; and that by a proviso inserted by Act No. 15 of 2024 with effect from 1 October 2024, where the consideration is of the nature referred to in s.2(22)(f) and the buy-back takes place on or after 1 October 2024, the value of the consideration is deemed to be nil for the purposes of the section. It arises in Capital Gains and How Tax Law Is Read matters, on section 46A, section 48, section 2(22)(f), section 115QA, section 10(34A), section 57, section 70, section 71(3), section 74 of the Income Tax Act 1961, and was decided by Not applicable — statutory text. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. For a buy-back on or after 1 October 2024, compute nil consideration minus cost, report the resulting capital loss, and separately offer the whole buy-back proceeds as deemed dividend under s.2(22)(f). Do not net the two. Classify the loss correctly as long-term or short-term on the holding period, and plan the set-off: a long-term capital loss can be set off only against long-term capital gains, and is carried forward for eight assessment years under s.74. For a buy-back before 1 October 2024, do not apply the proviso at all — and check whether s.115QA governed the transaction, in which case the shareholder's exemption under s.10(34A) was the operative provision rather than a s.46A computation. If the securities bought back are not shares within s.2(22)(f) — for example other specified securities within the s.46A Explanation — apply the main limb with real consideration; the nil-consideration proviso does not reach them. Check the withholding position separately. A deemed dividend under s.2(22)(f) is dividend income, and the buy-back proceeds may have suffered tax at source; the credit belongs in the year of the deemed dividend and not against the capital loss.
Still good law. The text is current: two published editions of different vintages print it identically, and the proviso carries a dated insertion footnote. No later edition was located, so a subsequent amendment cannot be excluded on this material. No decision construing the 1 October 2024 proviso has been found, which is unsurprising, since the first assessment year it can affect is AY 2025-26. The Tribunal decisions cited elsewhere in this library on s.46A all concern buy-backs before that date, and they should be read with that limit; the question they answer — what happens on a buy-back to which the old scheme applied — is not the question the proviso raises. Two things therefore remain open. The interaction of the proviso with s.2(22)(f), so that the same transaction yields a dividend on the receipt and a capital loss equal to the cost, has not been tested, and nothing shows how the Department will deal with a return claiming a large capital loss on that footing. And the treatment of a buy-back that straddles the date — where the offer was made before 1 October 2024 and the consideration received after it — is not addressed by the section and has not been decided. A shareholder in either position should expect the point to be taken and should keep the offer documents, the dates of tender and of acceptance, and the cost records together on the file, because the date that matters is fixed by the transaction and not by the year of receipt. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
'decided_on' is the commencement of the proviso, 1 October 2024, taken from the footnote printed under the section in both texts read — "Ins. by the Act No. 15 of 2024, w.e.f. 1-10-2024" — and not from the vintage of any edition. Act No. 15 of 2024 is the Finance (No. 2) Act, 2024; the footnote gives only the Act number and the short title has not been verified against the Gazette, so the Act number is what this entry relies on. The section itself was inserted by the Finance Act, 1999 with effect from 1 April 2000, recorded as a footnote in the older editions, one of which prints footnote 37, "Inserted by the Finance Act, 1999, w.e.f. 1-4-2000", and footnote 38, "For text of section 77A of the Companies Act, 1956, see APPENDIX". The intermediate history was checked deliberately, because it is often said that the Finance Act 2013 put a proviso into s.46A when it enacted s.115QA. It did not. The editions of 2015, 2019 and 2023 all print s.46A with no proviso at all, and those editions straddle the whole life of s.115QA. The exclusion of s.115QA buy-backs from the shareholder's hands before 1 October 2024 worked through the exemption in s.10(34A) and the then exclusion clause (iv) of s.2(22), and not through s.46A. The consequence that the nil consideration produces a capital loss equal to the cost is arithmetic on the section read with s.48. No decided case on it has been found and none is cited here. Two things a reader should carry. The proviso works by making the consideration nil, not by exempting anything, so the loss it produces is a capital loss and is subject to the ordinary restrictions: s.70 for set-off within the head, s.71(3) which keeps a capital loss out of other heads, and s.74 for carry forward. A shareholder who expects the loss to shelter business or other income will be disappointed. And the receipt is dealt with on the other side by s.2(22)(f), which treats the sum as a dividend in the shareholder's hands. The two work together: dividend on the receipt, and a capital loss equal to the cost on the extinguishment, with no deduction against the dividend except as s.57 allows. That combination, and not the section alone, is what decides what the shareholder actually pays. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Not a judgment. The statutory position is that s.46A deems the difference between the cost of acquisition and the value of the consideration received on a company's purchase of its own shares or other specified securities to be the shareholder's capital gains of the year of purchase, subject to s.48; and that by a proviso inserted by Act No. 15 of 2024 with effect from 1 October 2024, where the consideration is of the nature referred to in s.2(22)(f) and the buy-back takes place on or after 1 October 2024, the value of the consideration is deemed to be nil for the purposes of the section.
TaxSphere, “Statutory position — s.46A: buy-back in the shareholder's hands, and the proviso that deems the consideration NIL for any buy-back on or after 1 October 2024”, https://taxnotice.vittsphere.com/caselaw/case/statutory-position-46a-buyback-in-the-shareholders-hands-and-the-nil-consideration-proviso-from-1-october-2024/ (validity last checked 2026-09-09)
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My client's company bought back its shares in March 2025. Does the company still pay buy-back tax, and what does the selling shareholder put in his return?
For a buy-back completed before 1 October 2024 my client claimed the whole receipt as exempt under section 10(34A). The officer says the company got its section 115QA computation wrong, so the exemption goes. Is that right — and does the exemption still exist for a buy-back done now?
The department has raised a demand on my client company under section 115QA on a buy-back. Which buy-backs does the section actually reach, at what rate, on what figure, and is it still alive?
My client claimed the buy-back proceeds as exempt under section 10(34A). The Assessing Officer says the company paid too little buy-back tax, so he has denied the exemption and assessed the whole gain under section 46A. Can he do that?
