Section 115QA and 115QB: Buy-Back Tax Rules and Current Law

Sections 115QA and 115QB of the Income-tax Act, 1961 formed part of the former company-level tax regime for buy-back of shares. That regime is important for historical transactions, but it is no longer the current method of taxing a buy-back. This article explains the old provisions and the law applicable as on 28 September 2026.

Background: why Sections 115QA and 115QB are now historical provisions

Section 115QA was introduced to impose additional income-tax on distributed income arising from a domestic company's buy-back of shares. Section 115QB provided interest where the tax payable under Section 115QA was not paid within the prescribed time.

The Finance (No. 2) Act, 2024 inserted a sunset rule into Section 115QA. Consequently, Section 115QA did not apply to a buy-back taking place on or after 1 October 2024. For the period beginning 1 October 2024, the tax burden shifted from the company to the shareholder under the then applicable provisions, including the deemed-dividend rule and the special capital-gains computation rule.

From 1 April 2026, the Income-tax Act, 2025 replaced the Income-tax Act, 1961 for Tax Year 2026-27 onwards, subject to the statutory repeal, savings and transition provisions. The current buy-back provision is Section 69 of the Income-tax Act, 2025.

Section 115QA of the Income-tax Act, 1961: tax on distributed income to shareholders

Meaning: Section 115QA imposed an additional income-tax liability on a domestic company when it bought back its own shares from shareholders. The charge operated in addition to the normal income-tax payable on the company's total income.

For transactions to which Section 115QA applied, the additional income-tax rate stated in the section was 20 per cent of the "distributed income", subject to applicable statutory additions such as surcharge and cess under the law then in force.

Meaning of "buy-back" and "distributed income"

For Section 115QA, "buy-back" meant the purchase by a company of its own shares in accordance with the law relating to companies. "Distributed income" broadly meant the consideration paid by the company on the buy-back minus the amount received by the company when those shares were issued, determined in the prescribed manner.

Payment period and finality under the old regime

The principal officer and the domestic company were required to pay the Section 115QA tax to the credit of the Central Government within 14 days from the date on which consideration was paid to the shareholder. The section treated that tax as final in respect of the distributed income and restricted further credit or deduction in the manner stated in the provision.

Section 115QB: interest for non-payment of company-level buy-back tax

Section 115QB was consequential to Section 115QA. Where the principal officer or domestic company failed to pay all or part of the Section 115QA tax within the time allowed under Section 115QA(3), simple interest was payable at 1 per cent for every month or part of a month on the unpaid tax.

The interest period began immediately after the last date on which the Section 115QA tax should have been paid and ended on the date of actual payment. Because Section 115QB operated by reference to tax payable under Section 115QA, its practical relevance today is to historical liabilities arising under the former regime.

Current buy-back tax law from 1 April 2026: Section 69 of the Income-tax Act, 2025

Section 69 of the Income-tax Act, 2025 deals with capital gains when a company purchases its own shares or other specified securities. Broadly, the difference between the cost of acquisition and the consideration received is treated as capital gains in the year in which the company purchases the shares or specified securities, subject to the other applicable provisions of the Act.

Finance Act, 2026 amended Section 69 with effect from 1 April 2026. Where the statutory conditions are met and the shareholder or holder is a "promoter", Section 69 provides for additional income-tax on specified buy-back capital gains in addition to the income-tax otherwise payable under the Act. The exact computation depends on matters such as the nature of the security, holding period, taxpayer status and whether the person falls within the statutory promoter definition.

Meaning of "promoter" for the special rule

For a company whose shares are listed on a recognised stock exchange in India, Section 69 refers to the promoter meaning under the applicable SEBI buy-back regulations. In other cases, the statutory definition includes a promoter under the Companies Act, 2013 and also covers a person who directly or indirectly holds more than the prescribed shareholding threshold stated in Section 69.

Quick legal timeline

5 July 2019: Section 115QA was extended to listed-company buy-backs, subject to the statutory grandfathering proviso for specified public announcements made on or before that date.

1 October 2024: Section 115QA ceased to apply to buy-backs taking place on or after this date.

1 April 2026: The Income-tax Act, 2025 came into force. The current buy-back capital-gains provision is Section 69, as amended by Finance Act, 2026.

Official resources

For the latest statutory text and filing guidance, refer to the official Income Tax Department resources:

• Income-tax Act, 2025 - official portal
• Income-tax Act, 2025 as amended by Finance Act, 2026
• Section 115QA - historical statutory text
• Income Tax Department guidance on capital gains and buy-back

Note: Tax consequences depend on the date and terms of the buy-back, the status of the shareholder, the character and holding period of the securities, treaty provisions where relevant, and other facts. Historical transactions should be examined under the law applicable to the relevant period.