Section 115QA → Section 138
Tax on distributed income to shareholders (Buyback Tax)
Quick Answer
Section 115QA of the Income Tax Act, 1961 (Tax on distributed income to shareholders (Buyback Tax)) corresponds to Section 138 of the Income-tax Act, 2025, effective 1st April 2026. Status: Retained.
What changed for Section 115QA
Section 115QA of the 1961 Act sets out the rules on tax on distributed income to shareholders (buyback tax). Domestic companies pay a flat 20% tax on the distributed income (buyback price minus issue price) during share buybacks. Exempt for shareholders.
The new code maps this to Section 138: the provision is retained and renumbered as Section 138 of the Income-tax Act, 2025, applying from 1st April 2026. Retained but structurally changed. The buyback proceeds are now treated as dividend income and taxed in the hands of the shareholder at slab rates, effectively nullifying the company-level 20% tax.
On the ground, changes to Section 115QA carry a Critical impact. Completely alters the corporate strategy of returning cash via share buybacks vs dividends.
Sec 115QA
Provision Summary
Domestic companies pay a flat 20% tax on the distributed income (buyback price minus issue price) during share buybacks. Exempt for shareholders.
Sec 138
Provision Summary
Retained but structurally changed. The buyback proceeds are now treated as dividend income and taxed in the hands of the shareholder at slab rates, effectively nullifying the company-level 20% tax.
Key Changes & Highlights
- Taxation moved from company to shareholder to align with dividend taxation rules.
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Frequently Asked Questions
What does Section 115QA of the Income Tax Act 1961 deal with?
Section 115QA of the Income Tax Act, 1961 covers tax on distributed income to shareholders (buyback tax). Domestic companies pay a flat 20% tax on the distributed income (buyback price minus issue price) during share buybacks. Exempt for shareholders.
Where does Section 115QA of the ITA 1961 go under the Income-tax Act, 2025?
Section 115QA of the Income Tax Act, 1961 maps to Section 138 of the Income-tax Act, 2025, effective 1st April 2026 (status: Retained). Retained but structurally changed. The buyback proceeds are now treated as dividend income and taxed in the hands of the shareholder at slab rates, effectively nullifying the company-level 20% tax.
Why does the change to Section 115QA matter for taxpayers?
The transition impact for Section 115QA is rated Critical. Completely alters the corporate strategy of returning cash via share buybacks vs dividends.
What are the key changes to Section 115QA under the Income-tax Act, 2025?
Taxation moved from company to shareholder to align with dividend taxation rules. These points are specific to Section 115QA (Tax on distributed income to shareholders (Buyback Tax)).
Disclaimer: This mapping of Section 115QA (Tax on distributed income to shareholders (Buyback Tax)) to Section 138 of the Income-tax Act, 2025 is for educational and reference purposes only, based on publicly available drafts and circulars. As Section 115QA is currently marked Retained, always confirm its treatment with a qualified Chartered Accountant before filing or making compliance decisions.
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