The story
Vikram is a director and minority shareholder of a private limited company in Gurugram. In November 2024 the company offered to buy back shares. A colleague who had participated in a different company’s buyback in August 2024 had paid zero tax on the proceeds. Vikram, participating in November 2024, received his proceeds and discovered the full amount was taxable as deemed dividend at his slab rate. He paid ₹8.4 lakh in tax on ₹20 lakh of proceeds, and his ₹6 lakh cost of acquisition became a capital loss usable only against other capital gains — of which he had none.
Now it is May 2026. Vikram’s company is planning another buyback, and the Finance Act 2026 changed the rules again from 1 April 2026. This blog maps all three regimes and answers which one applies to your situation right now.
Why three different rules in 18 months
The confusion is the result of three successive policy reversals, each responding to a problem created by the previous one. Think of it like a road that was first toll-free, then had a toll imposed on drivers, then was changed to a toll on the cargo, and is now back to a toll on drivers — but only on the premium cargo.
The governing rule for your buyback is determined not by the company’s incorporation date, not by your shareholding percentage, and not by when you originally bought the shares. It is determined by the date the company makes the buyback payment to you. That date — and only that date — determines which of the three regimes applies.
Three regimes, three outcomes
| Regime | When it applies | Who pays tax | On what amount |
|---|---|---|---|
| Regime 1 | Paid on or before 30 Sep 2024 | Company pays 23.3% buyback tax (Sec. 115QA) | Full distributed amount — shareholder receives tax-free; cost = capital loss |
| Regime 2 | Paid 1 Oct 2024 – 31 Mar 2026 | Shareholder at slab rate (up to 42.74%) | FULL proceeds taxed as deemed dividend; cost separately = capital loss |
| Regime 3 | Paid from 1 Apr 2026 | Shareholder at capital-gains rates | GAIN ONLY (proceeds minus cost); LTCG 12.5% / STCG 20% |
Regime 1 (pre-October 2024): under Section 115QA, companies paid roughly 23.3% (20% + 12% surcharge + 4% cess) on the distributed amount; shareholders received proceeds tax-free, and the cost of acquisition was a capital loss usable against other capital gains.
Regime 2 (Oct 2024 – Mar 2026): the Finance Act 2024 abolished Section 115QA. The company paid zero tax; full proceeds were a deemed dividend taxed at slab (up to 42.74%); the cost became a separate capital loss. A shareholder who paid ₹100/share and received ₹300 was taxed on the full ₹300 — with the ₹100 cost usable only against other capital gains many small investors did not have.
Regime 3 (from 1 April 2026): the Finance Act 2026, via Section 69 of the Income Tax Act 2025, restores capital-gains treatment — tax only on the actual gain. LTCG 12.5% (held 12+ months), STCG 20%, no company-level tax.
The promoter additional levy
To stop promoters using buybacks as a lower-tax exit, the Finance Act 2026 adds a Special Additional Tax on promoters — an effective 30% for individual/non-corporate promoters and 22% for domestic corporate promoters. For unlisted private companies, “promoter” includes anyone with 10%+ direct or indirect shareholding, or classified as a promoter under Section 2(69) of the Companies Act 2013.
| Promoter type | Normal CG tax | Additional levy | Effective rate |
|---|---|---|---|
| Individual / non-corporate promoter | 12.5% LTCG / 20% STCG | Additional levy to total 30% | 30% on capital gains |
| Domestic corporate promoter | Applicable corporate CG rates | Additional levy to total 22% | 22% on capital gains |
| Non-promoter shareholder (below 10%) | 12.5% LTCG / 20% STCG | No additional levy | 12.5% or 20% on actual gain only |
Vikram vs Ananya — same economics, very different bills
Both hold shares in private limited companies, both receive ₹20 lakh in buyback proceeds, both acquired at ₹6 lakh and held more than 24 months — a ₹14 lakh gain in each case. The only difference is the date the payment landed.
- Full ₹20 lakh taxed as deemed dividend at 30% slab + cess
- ₹6 lakh cost became a carried-forward capital loss, unusable
- Tax: approx. ₹8.4 lakh
- Net received: ₹11.6 lakh
- Only the ₹14 lakh gain taxed as LTCG (cost fully offset)
- Less ₹1.25 lakh exemption → ₹12.75 lakh at 12.5%
- Tax: approx. ₹1.59 lakh
- Net received: ₹18.41 lakh
Same transaction, same underlying economics, a ₹6.8 lakh difference in tax — decided entirely by which date the payment was received.
How to actually start — 5 things to do before a 2026 buyback
- Confirm the buyback payment date, not the board-resolution date. The regime follows the date the company actually pays you — not when the resolution passed, the offer opened, or you tendered shares. A January 2026 resolution paid in May 2026 is Regime 3. Confirm the payment date with your company secretary first.
- Determine whether you qualify as a promoter. For unlisted companies the 30% effective rate applies to anyone with 10%+ direct or indirect holding, or a promoter under Section 2(69). Calculate combined/indirect holdings — 8% directly plus a spouse’s 5% with shared economic interest may cross 10%.
- Verify your holding period for LTCG vs STCG. LTCG at 12.5% needs more than 12 months from acquisition to the payment date. If you are near the mark, waiting a few weeks before payment can shift you from STCG (20%) to LTCG (12.5%).
- Verify your TDS position under the new regime. Regime 2 deducted dividend TDS; under Regime 3 proceeds are capital gains — generally no TDS for resident shareholders in listed transactions, though unlisted-company and NRI cases differ. Reconcile any mismatch with your CA before filing.
- Plan your ITR for TY 2026-27 correctly. Regime 3 gains belong in the capital-gains schedule, not dividend income. If the company deducted dividend TDS for a Regime 3 payment, your Form 26AS will mismatch — work with your CA so the schedule and TDS credits match. Promoters must compute and report the additional levy separately.
Your buyback proceeds are not just a financial event — they are a compliance event that requires the correct regime identification before a single number is calculated.
Key takeaways
| Key compliance point | What you must do |
|---|---|
| Regime 3 applies from 1 April 2026 — proceeds are capital gains, not deemed dividend | Confirm the payment date before calculating tax — the regime is set by payment date only |
| Non-promoters pay 12.5% LTCG or 20% STCG on the gain only | Calculate holding period from acquisition to payment — 12+ months = LTCG; below = STCG |
| Promoters in unlisted companies = 10%+ direct or indirect holding | Calculate effective shareholding including indirect holdings before assuming non-promoter status |
| Regime 2 buybacks were taxed on full proceeds as dividend | Confirm ITR schedule and TDS credit matching with your CA for any buyback received Oct 2024 – Mar 2026 |
But here is the other side…
Regime 3 is not better than all prior regimes for everyone. Under Regime 1 (pre-October 2024), shareholders received proceeds completely tax-free because the company paid 23.3%. Under Regime 3 they pay 12.5% LTCG or 20% STCG on the gain. For shareholders who bought near the buyback price (a small gain relative to proceeds), Regime 3 is far better than Regime 2; for those who took large premiums tax-free in the pre-October 2024 period, Regime 3 is a higher burden. Regime 3 is the most equitable framework for retail investors — but equitable is not the same as cheapest.
The date on the cheque is the rule that applies
India’s buyback-tax history is a reminder that planning around a corporate event cannot be done in isolation from the regulatory environment at the time of execution. The resolution authorising Vikram’s November 2024 buyback was drafted in September 2024 — when the rules suggested shareholders might pay no tax. By the time payment was made, the rules had changed. The Finance Act 2026 restores logical capital-gains treatment; for promoters and directors with significant holdings, the additional levy is a real cost to factor into any buyback decision from April 2026 onwards.
WeConsult India advises companies across Gurugram’s Sector 82, Sector 84 and the Cyber Hub corridor on buyback structuring, tax computation and Companies Act compliance for buyback offers. If your company is planning a buyback in TY 2026-27, contact us before the board resolution is drafted.
Stay compliant. Stay protected. — WeConsult India