Explanation
Section 115QA was introduced to tax share buybacks by unlisted domestic companies as a form of deemed dividend distribution, preventing the routing of dividends through buyback to avoid tax. The tax is levied on the company — not the shareholder — at 20% plus applicable surcharge and cess on the amount of distributed income (consideration paid minus issue price of shares). Proceeds in the shareholder's hands were exempt under §10(34A). For listed companies, buyback proceeds were also previously exempt for shareholders. Finance (No. 2) Act 2024 withdrew this exemption for listed company buybacks with effect from 1 October 2024. Post-October 2024, proceeds from listed company share buybacks are taxable as capital gains in the hands of shareholders: long-term if shares held for more than 12 months (LTCG at 12.5% above ₹1.25 lakh), short-term otherwise (STCG at 20%). The company no longer pays the §115QA tax on listed buybacks after this date. Unlisted company buybacks continue under the §115QA regime. Verify on the income-tax portal before filing.