# Buyback of Shares

> A company can buy back up to 25% of its paid-up capital and free reserves under Section 68 of the Companies Act — up to 10% with board approval and beyond that with a special resolution — provided its debt-to-equity ratio after the buyback is no more than 2:1. Since 1 October 2024, the whole buyback amount is taxed as dividend in the shareholder's hands at slab rates, and the cost of the shares bought back becomes a capital loss.

Practice: Mergers, Acquisitions & Restructuring — https://www.industax.com/services/mergers-acquisitions/

The 2024 change shifted the tax from the company to shareholders, which makes buybacks less attractive for high-slab shareholders and more nuanced to plan. The capital loss can offset other capital gains.

We test eligibility, model the tax for shareholders, and run the process — offer document, declarations, extinguishment and filings.

## Key facts

| Item | Detail |
| --- | --- |
| Limit | 25% of paid-up capital + free reserves |
| Approvals | Board up to 10%; special resolution above |
| Debt-equity after buyback | ≤ 2:1 |
| Tax (from 1 Oct 2024) | Dividend in shareholder's hands; cost becomes capital loss |
| Filings | SH-8, SH-9, SH-11 and others |

## Who needs this

- Companies returning surplus cash
- Companies consolidating shareholding
- Shareholders evaluating buyback offers

## What's included

- Eligibility test
- Shareholder tax modelling
- Process and filings

## Documents

- Audited financials
- Shareholding
- Board and shareholder resolutions

## Process

1. **Test** — Limits and solvency checked.
2. **Approve** — Resolutions and offer.
3. **Complete** — Payment, extinguishment and filings.

## FAQs

### Is buyback still more tax-efficient than dividend?

Not usually since October 2024, because buyback proceeds are taxed like dividends. The difference now lies in the capital loss shareholders get on the cost of shares bought back.

### Can a company do two buybacks in a year?

No. There must be a gap of at least one year between two buybacks.

### Is TDS deducted on buyback payments?

Yes, as on dividends, at the applicable rates for resident and non-resident shareholders.

## Official sources

- Ministry of Corporate Affairs: https://www.mca.gov.in/
- incometaxindia.gov.in: https://www.incometaxindia.gov.in/

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Publisher: Indus Tax — CA-led tax and compliance firm (https://www.industax.com). Contact: info@industax.com, 9059139258.
This is general information, not advice for your specific facts.