Hi,
This is regarding taxation on buyback after 01st Oct 2024.
I bought Tanla Platform shares at ₹28,507, while the buyback price is ₹28,000 (32 @ Rs. 875).
Being in the 30% tax slab, I must pay 30% + cess on ₹28,000 (i.e., ₹8,736) despite a ₹507 capital loss.
My capital investment of ₹ 28,507 can be carried forward for 8 years and offset against LTCG (I always avoid Short term profit booking) at 12.5%, giving only about ₹3,705 relief—far less than the buyback tax.
How is this tax justified, and is there any way to avoid or reduce the buyback tax for AY 2026-27?
Regards,
Murali
Hi @Murali_Subramanian,
Buybacks after 1st Oct 2024 are treated as deemed dividends and taxed at your income tax slab rate, even if you incur a capital loss. In your case:
- Purchase price is ₹28,507 per share
- Buyback price is ₹28,000 per share
- Loss is ₹507
Even though you have a loss, the company will deduct TDS at 10% (mandatory for residents) on the buyback proceeds.
And this capital loss of ₹507 can be carried forward for 8 years to offset future LTCG, but it does not reduce the buyback tax at the time of the transaction.
Hi Miss. Diti,
It is not only the capital loss of ₹507. Since I am in 30% tax slab, I must pay ₹8,736 on total buyback price. Whereas I will get ₹3,705 relief by offsetting to LTCG in next 8 years.
Hence, my overall loss is ₹5,538 (₹8736 - ₹3705 + 507). So, I strongly believe that this taxation is totally wrong.
Hi @Murali_Subramanian,
Your calculation of ₹5,538 as the effective loss is correct. For buybacks after 1st Oct 2024, the proceeds are treated as a deemed dividend and taxed at your income tax slab rate, which is why the TDS of ₹8,736 applies even though you incurred a capital loss of ₹507. The capital loss can be carried forward for 8 years to offset future LTCG, giving ₹3,705 relief, but this cannot reduce the TDS at the time of buyback.
This treatment is in line with the Finance Act (No. 2) 2024, which mandates upfront tax collection on buyback proceeds. While it may feel harsh, the only relief comes from using your capital losses to offset future LTCG.