Three regimes in eighteen months
Buyback tax has moved through three phases, and getting the date right is the whole game. Until 30 September 2024, the company itself paid a buyback distribution tax under Section 115QA, and the amount you received was tax-free in your hands, you had nothing to declare.
That flipped for buybacks on or after 1 October 2024. The company-level tax was withdrawn, and instead the entire buyback consideration was treated as a dividend in your hands, taxed as income at your applicable rate. Crucially, no cost was allowed against that dividend, the whole receipt was taxed. Then, separately, the law treated your sale consideration on those shares as nil for capital-gains purposes, which turned your cost in the bought-back shares into a capital loss, one you could set off against other capital gains and carry forward. So a single buyback in that window produced both a taxable dividend and a usable capital loss. From 1 April 2026, the rule changed again, reverting to capital-gains treatment: the buyback is taxed on the net gain, the price you receive less your cost, as an ordinary share sale would be, with a heavier charge falling on promoter shareholders.
The window that catches NRIs, and the loss
The middle window, October 2024 to March 2026, is the one that surprises NRIs, and it is still live for returns being filed for that period. In that window the buyback is a dividend to you, and a dividend paid to a non-resident carries TDS under Section 195. The company withholds on the gross buyback amount, and you bring it down to the treaty dividend rate for your country by giving a tax residency certificate and Form 10F, so you are not left over-withheld at the domestic rate.
Do not lose the capital loss. Because the law deemed your sale consideration nil, the cost you paid for the bought-back shares is a capital loss for that year, and it is genuinely valuable: you can set it against other capital gains and carry it forward for eight years. Many people declare the dividend and simply forget the loss, leaving money on the table. A practising CA reports the buyback correctly for its window, caps the Indian tax at the treaty rate, and captures the capital loss.
Which rule applies to you
So the practical steps are date-first. Establish when the buyback took effect. A buyback up to 30 September 2024 is already settled, nothing to declare, the company paid. A buyback between 1 October 2024 and 31 March 2026 is a dividend in your hands plus a capital loss, and if you are an NRI, a Section 195 TDS matter to bring down to the treaty rate. A buyback from 1 April 2026 onward is back to a normal capital gain on the net profit.
Because the rules straddle the change in the underlying tax law as well, it is worth having someone who is tracking the transition handle it rather than relying on older guidance, much of which still describes only one of the three regimes. A practising CA identifies the right window, applies the correct treatment, and, in the dividend window, secures both the treaty rate and the capital loss.