TDS and Income tax on buy back on listed shares

Income Tax Income from Capital Gains
1

Dear Sir Madam
Pls advise TDS on buy back of listed Shares. Of the record. It is being updated that now TDS on buy back of Shares will be deducted irrespective of amount. Which means if the buy back amount is even less than the threshold amount of Ten Thousand then also TDS @ 10 percent will be deducted. Even buy back amount is 1500 then also rs 150 will be deducted.

So pls advise what is correct on TDS on buy back of listed Shares

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:white_check_mark: TDS on Buyback of Listed Shares – What You Need to Know

The taxation of buyback of shares is governed under Section 115QA and Section 194 of the Income Tax Act.

:magnifying_glass_tilted_left: Earlier Scenario (Before July 5, 2019):

  • Only unlisted companies were subject to buyback tax under Section 115QA.
  • In such cases, the company paid tax on buyback, and no TDS was deducted from the shareholder.

:pushpin: Change Introduced by Finance Act (No. 2), 2019:

  • Now, both listed and unlisted companies fall under the purview of **Section 115QA**, effective from July 5, 2019.
  • This means that if a listed company buys back its own shares (even if it’s listed on the stock exchange), it will be liable to pay buyback tax at 20% (plus surcharge and cess).
  • Shareholders do NOT have to pay tax on the income from buyback — it is exempt in their hands under Section 10(34A).

:magnifying_glass_tilted_left: What About TDS?

Here’s where the confusion often arises:

  • TDS is NOT applicable to buyback of listed shares made through the stock exchange mechanism.This is because:
    • The tax is already paid by the company under Section 115QA.
    • The income is exempt in the hands of the shareholder under Section 10(34A).
    • There is no requirement under the law to deduct TDS in such cases.

:red_exclamation_mark: But… If the buyback is off-market or off-the-record, the situation can be different:

  • If the buyback is not routed through the stock exchange and is done privately (off-market), and
  • If the company is not complying with Section 115QA, then the income may be treated as capital gains or dividend, and TDS may apply depending on the nature of the transaction.

:receipt: Clarification on Threshold & ₹10,000 Limit

The ₹10,000 threshold is relevant in dividend income TDS (Section 194), not in buybacks governed by Section 115QA.

If TDS is being deducted on even small buyback amounts (like ₹1,500), it may be due to misclassification of the transaction — possibly treating it as dividend payout or capital gains, not as a buyback under Section 115QA.

:white_check_mark: Final Summary:

Particulars Listed Company Buyback (via Stock Exchange) Listed Company Buyback (Off-Market)
Tax Paid by Company Yes (Under Section 115QA) Possibly Yes/No (depends on how done)
TDS Applicable :cross_mark: No :white_check_mark: Possibly Yes
Tax in Shareholder’s Hands Exempt (Section 10(34A)) Taxable (as capital gains or other income)
₹10,000 Threshold Relevance :cross_mark: Not applicable to buyback Only relevant for dividend (Section 194)

:light_bulb: Recommendation:

If TDS is being deducted even on ₹1,500 buyback, check:

  • Whether the buyback was through stock exchange.
  • Whether the company is listed and complying with Section 115QA.
  • Whether it’s being processed as a capital gain or dividend payout, instead of a buyback under law.

For accurate handling, it’s best to consult with a tax advisor or CA.

Let me know if you want help with the tax treatment in your specific case.