Section 69
Section 69: capital gains on purchase by a company of its own shares or specified securities
Section 69 governs how a shareholder or holder of other specified securities is taxed when a company buys back its own shares or securities. The basic rule taxes the difference between the buyback consideration and the cost of acquisition as capital gains, but the section also layers on an additional income-tax specifically on promoters' capital gains from Companies Act buybacks, at rates that vary by holding period and residency status of the company.
The basic buyback taxation rule
Section 69(1) provides that where a shareholder or holder of other specified securities receives consideration from a company for the purchase of its own shares or specified securities, the difference between the cost of acquisition and the consideration received is deemed to be "capital gains" arising to that shareholder/holder in the year the company purchases the shares or securities, subject to Section 72.
Additional tax on promoter capital gains from a buyback
Section 69(2) applies where a company buys back its own shares or specified securities under Section 68 of the Companies Act, 2013, and the shareholder or holder is a "promoter." In that case, the aggregate income-tax payable on the resulting capital gains is the ordinary tax payable under the Act, plus an additional income-tax at the rates below:
| Type of gain | Promoter is a domestic company | Promoter is other than a domestic company |
|---|---|---|
| Short-term capital gains (as referred to in Section 196) from transfer of such securities | 2% | 10% |
| Long-term capital gains (as referred to in Section 197 or Section 198) from transfer of such securities | 9.5% | 17.5% |
Who counts as a "promoter"
Section 69(3) defines "promoter": for a company listed on a recognised stock exchange in India, it takes the meaning from Regulation 2(k) of the SEBI (Buy-Back of Securities) Regulations, 2018; in any other case, it means a "promoter" as defined in Section 2(69) of the Companies Act, 2013, or a person who directly or indirectly holds more than 10% of the company's shareholding.
"Specified securities" has the same meaning as assigned in Explanation 1 to Section 68 of the Companies Act, 2013.
Frequently asked questions
How is a shareholder taxed on a company share buyback?
The difference between the buyback consideration received and the cost of acquisition of the shares is treated as capital gains in the year of the buyback, under Section 69(1).
What is the additional tax rate on promoter capital gains from a Companies Act buyback?
For short-term capital gains, 2% if the promoter is a domestic company or 10% otherwise; for long-term capital gains, 9.5% if the promoter is a domestic company or 17.5% otherwise, as set out in the Section 69(2) table.
Does the additional tax under Section 69(2) apply to every shareholder in a buyback?
No - it applies only where the shareholder or holder of specified securities is a "promoter" as defined in Section 69(3).
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