Section 46A

Section 46A — the law in short

What the courts have decided on section 46A, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Bhikhalal Prahladrai Agarwal (HUF) v ACIT (ITAT Rajkot) — a shareholder's s.10(34A) buy-back exemption cannot be withdrawn because the Assessing Officer thinks the company underpaid s.115QA tax, and "distributed income" is measured from the ISSUE price including premium, not the shareholder's cost ITATHelps taxpayer
  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?
  No — on a buy-back before 1 October 2024, which is the regime this order is about, the ITAT Rajkot held that neither s.115QA nor s.10(34A) empowers the Assessing Officer to withdraw the shareholder's exemption on the ground that the company paid too little, and that the remedy for short payment lies against the company and its principal officer under s.115QC. The Tribunal also held that the officer had used the wrong base: "distributed income" under the Explanation to s.115QA(1) read with Rule 40BB is the buy-back consideration less the amount the COMPANY received on issue of the shares, including premium — here Rs.26 less Rs.25 — and not the buy-back price less the tendering shareholder's cost of Rs.2. The addition of Rs.46,46,469 was deleted.
• Rukmani Wires Pvt Ltd v DCIT (ITAT Delhi) — where the buy-back price is BELOW the issue price there is no "distributed income", so s.115QA cannot apply and s.10(34A) cannot be used to deny the shareholder's capital loss ITATHelps taxpayer
  My client's shares were bought back at less than the price the company issued them at, so it made a loss. The Assessing Officer says buy-back income is exempt under section 10(34A), so the loss cannot be carried forward — and he has levied concealment penalty. Is the loss really lost?
  On a buy-back before 1 October 2024, which is the regime this order is about, the ITAT Delhi held that where the buy-back consideration is lower than the price at which the company issued the shares there is no "distributed income", so s.115QA "per se cannot be applied", and that s.10(34A) — which exempts income on a buy-back "as referred to in section 115QA" — "also consequentially would not have any application". The very basis on which the officer had denied the carry-forward of the long-term capital loss was therefore "legally incorrect". Because the denial of the loss was itself unsustainable, no penalty for furnishing inaccurate particulars could stand on it, and in any event the claim was at worst an incorrect claim on a question of interpretation with all the figures already on the record; the s.271(1)(c) penalty of Rs.57,98,464 was directed to be deleted.
• Cognizant Technology Solutions India P Ltd v ACIT ITATHelps departmentUnder appeal
  We repurchased shares through a court-approved scheme. Can the department still call it a dividend?
  On these facts, yes. The Chennai Tribunal held the repurchase was a colourable device — in substance a reduction of capital releasing the company's assets to shareholders — taxable as deemed dividend under s.2(22)(d), alternatively s.2(22)(a), with dividend distribution tax under s.115-O payable by the company. The High Court's sanction of the scheme conferred no tax immunity.
• Statutory position — the Finance (No. 2) Act 2024 buy-back regime: s.2(22)(f) deemed dividend from 1 October 2024 CBDT Circulars & InstructionsCuts both ways
  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 that takes place on or after 1 October 2024 the company pays nothing: a proviso inserted in s.115QA(1) disapplies the 20 per cent additional tax to such buy-backs, and a proviso inserted in s.10(34A) withdraws the shareholder's exemption. Instead the whole consideration is a dividend in the shareholder's hands under the new s.2(22)(f), and a proviso to s.46A deems the value of the consideration to be nil for capital-gains purposes, so the cost of the shares comes out as a capital loss.
• 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 CBDT Circulars & InstructionsCuts both ways
  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".
• Statutory position — Rule 40BB: how the "amount received by the company" is computed for s.115QA buy-back tax, sub-rule by sub-rule, including bonus shares at nil and dematerialised shares on FIFO CBDT Circulars & InstructionsCuts both ways
  The Assessing Officer has computed my client company's buy-back tax by deducting what the tendering shareholder paid for the shares. Which figure does the Act actually require, and where is it laid down?
  Rule 40BB matters only for buy-backs governed by s.115QA — that is, buy-backs before 1 October 2024, since the second proviso to s.115QA(1) switches that section off from that date. It prescribes, for clause (ii) of the Explanation to s.115QA(1), "the amount received by a company in respect of the share issued by it, being the subject matter of buy-back", and that figure — not the shareholder's cost — is what is deducted from the buy-back consideration to give the "distributed income" charged at twenty per cent. The general rule in sub-rule (2) is the amount actually received on subscription "including any amount actually received by way of premium"; sub-rule (13) makes the face value the amount received in any case the rule does not otherwise cover.
• Statutory position — s.10(34A): the shareholder's exemption for buy-back proceeds, what it covered from AY 2014-15, why it stopped mattering for buy-backs on or after 1 October 2024, and the one thing it does not do CBDT Circulars & InstructionsCuts both waysSuperseded by amendment
  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?
  Section 10(34A) is a provision about buy-backs BEFORE 1 October 2024: it exempts in the shareholder's hands "any income arising to an assessee, being a shareholder, on account of buy back of shares by the company as referred to in section 115QA", and because the second proviso to s.115QA(1) switches that section off for any buy-back taking place on or after 1 October 2024, a buy-back from that date is no longer one "referred to in section 115QA" and the exemption has nothing to attach to — the proceeds are instead a deemed dividend under s.2(22)(f). The clause was inserted by the Finance Act, 2013 with effect from 1 April 2014, that is from AY 2014-15, and as originally enacted it was confined to buy-back of shares "(not being listed on a recognised stock exchange)"; the words of limitation had gone by the time the Tribunal reproduced the clause in 2024 and 2025, matching the parallel deletion of the same words from s.115QA with retrospective effect from 5 July 2019.
• Statutory position — s.115QA: the twenty per cent buy-back tax on the COMPANY, the 5 July 2019 extension to listed shares, and the second proviso that switches the section off for buy-backs on or after 1 October 2024 CBDT Circulars & InstructionsCuts both ways
  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?
  Section 115QA charges the COMPANY, not the shareholder, and it governs buy-backs from 1 June 2013 up to and including 30 September 2024 only: the second proviso to sub-section (1), inserted by Act No. 15 of 2024 with effect from 1 October 2024, provides that the sub-section "shall not apply in respect of any buy-back of shares, that takes place on or after the 1st day of October, 2024". Within that window a domestic company is liable, in addition to the income-tax on its total income, to additional income-tax at twenty per cent on the "distributed income" — defined by the Explanation as the consideration paid on the buy-back reduced by the amount received by the company for issue of those shares, determined in the manner prescribed (Rule 40BB). Two dates cut across the window: until 5 July 2019 the section applied only to shares not listed on a recognised stock exchange, and the first proviso preserves that exclusion for a listed buy-back whose public announcement was made on or before 5 July 2019.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.