Capital gains on purchase by company of its own shares or other specified securities
[As per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Section 69(1) of Income Tax Act 2025
69(1) If a shareholder or a holder of other specified securities receives any consideration from any company for the purchase of its own shares or other specified securities held by such shareholder or holder of other specified securities, then, subject to the provisions of section 72, the difference between the cost of acquisition and the value of consideration so received shall be deemed to be the “Capital gains” arising to such shareholder or the holder in the year in which the company purchases the shares or other specified securities.
Section 69(2) of Income Tax Act 2025
69(2) If the shareholder receives any consideration of the nature referred to in section 2(40)(f), from any company in respect of buy-back of shares, then for the purposes of this section, the value of such consideration shall be deemed to be nil.
Section 69(3) of Income Tax Act 2025
69(3) For the purposes of this section, “specified securities” shall have the same meaning as assigned to it in Explanation 1 to section 68 of the Companies Act, 2013.
FAQs on Section 69 of Income Tax Act 2025
1. What is the tax treatment under Section 69(1) when a company purchases its own shares from a shareholder?
The difference between the cost of acquisition of the shares or specified securities and the consideration received from the company shall be treated as capital gains in the hands of the shareholder or holder, taxable in the year of purchase.
2. What is the meaning of “capital gains” under Section 69(1)?
It refers to the profit arising to the shareholder or holder when the consideration received from the company for the purchase of its own shares or securities exceeds the cost of acquisition.
3. In which year are capital gains taxed when a company buys back its own shares?
Capital gains are deemed to arise in the year in which the company purchases the shares or other specified securities.
4. What is considered the ‘cost of acquisition’ under Section 69(1)?
It is the original price at which the shareholder or holder acquired the shares or specified securities being bought back by the company.
5. What happens if the company pays consideration for buy-back as referred to in Section 2(40)(f)?
In such cases, as per Section 69(2), the value of such consideration shall be deemed to be nil for the purposes of computing capital gains.
6. What is the effect of Section 69(2) on capital gains computation?
If consideration received is of the type defined in Section 2(40)(f), it will be treated as nil, potentially resulting in the entire cost of acquisition being considered a capital loss or zero gain.
7. What does Section 2(40)(f) refer to?
It typically refers to amounts received under share buy-back schemes subject to specific tax treatments; details are to be read in conjunction with Section 2(40)(f) of the Act.
8. What are “specified securities” under Section 69(3)?
They carry the same meaning as defined in Explanation 1 to Section 68 of the Companies Act, 2013.
9. Does Section 69 apply to both listed and unlisted shares?
Yes, it applies to all shares and specified securities bought back by a company, whether listed or unlisted, subject to the conditions mentioned.
10. Are capital gains under Section 69 taxed in the hands of the company or the shareholder?
The capital gains are taxable in the hands of the shareholder or the holder of the specified securities.
11. Is the buy-back taxed differently if routed through a stock exchange?
Yes, different provisions may apply depending on the route of buy-back and classification under Section 2(40)(f), which could result in the consideration being deemed nil.
12. Does Section 69 override Section 45 on capital gains?
Section 69 specifically deals with company buy-back cases and applies notwithstanding general provisions under Section 45, though subject to Section 72.
13. What does ‘subject to the provisions of section 72’ in Section 69(1) imply?
It means the computation and taxation of capital gains must also align with the loss set-off and carry-forward rules as provided in Section 72.
14. Are there any exemptions available under Section 69?
No specific exemptions are stated under Section 69; general capital gains exemptions may be considered where applicable.
15. Is indexation benefit available while calculating capital gains under Section 69?
If the gain is considered long-term, indexation may be available as per general capital gains computation rules, unless specifically excluded.
16. What if shares were acquired as a gift or through inheritance?
In such cases, the cost of acquisition is taken as the cost to the previous owner, as per standard capital gains rules.
17. Can capital losses from such buy-backs be carried forward?
Yes, subject to provisions of Section 72, capital losses can be carried forward and set off against future capital gains.
18. Is there any TDS obligation on the company when making buy-back payments?
The company may have TDS obligations under other sections (like 194) depending on the nature of the transaction and status of the shareholder.
19. Does Section 69 apply to buy-backs under a scheme of arrangement or amalgamation?
Not directly; such cases may fall under separate provisions unless structured as a buy-back as per Section 69.
20. How is the fair market value determined for the purpose of buy-back under Section 69?
Fair market value is not directly mentioned in Section 69; the actual consideration received and cost of acquisition are used for capital gains calculation.
21. Is there any reporting obligation on the shareholder for buy-back gains?
Yes, the shareholder must report the capital gain in their income tax return for the relevant year.
22. Is there a threshold limit for applicability of Section 69?
There is no threshold limit mentioned; it applies to all buy-back transactions by a company.
23. What if the shares were allotted under an ESOP or bonus issue?
Capital gains will still be computed under Section 69 using the relevant cost of acquisition based on ESOP or bonus rules.
24. Is Section 69 applicable in case of partial buy-back of shares?
Yes, it applies proportionately to the number of shares bought back by the company.
25. Are NRI shareholders also covered under Section 69?
Yes, NRI shareholders are subject to capital gains under Section 69 for buy-back of shares by Indian companies, though tax treaties may apply.
