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In India, the tax result depends on the event and its date. A normal dividend is taxed to the recipient as Income from Other Sources. A bonus share is generally not taxed when allotted, but its cost is nil and its holding period starts on the allotment date. For a domestic-company buyback completed on or after 1 October 2024, the amount received is treated as deemed dividend, while the extinguished shares are treated as having nil sale consideration for a separate capital-loss calculation. For qualifying STT-paid listed-equity transfers on or after 23 July 2024, section 111A short-term capital gains are taxed at 20%, and section 112A long-term gains are taxed at 12.5% above the annual ₹1,25,000 threshold.
The calculations below use Indian Income Tax Department rules current to 19 October 2026. Your final liability can still differ because of residence status, treaty claims, security type, transaction dates, other income, and whether a transaction satisfies the conditions for a concessional section 111A or 112A rate.
Tax treatment at a glance
Identify the event first, then apply the correct tax head, cost basis and date rules. The same company action can create two different tax computations, as happens with a post-1 October 2024 buyback.
| Event | Tax head or computation | Cost basis | Important date rule |
|---|---|---|---|
| Cash dividend | Income from Other Sources | No capital-gains cost allocation | Use the date and gross amount shown in the company or broker statement |
| Bonus shares allotted without payment | No dividend tax merely on allotment | Nil cost of acquisition under section 55(2)(aa)(iiia) | Holding period starts on the allotment date |
| Sale of original shares | Capital gains | Actual amount paid, allocated to the shares sold | Holding period starts on the original purchase or acquisition date |
| Sale of bonus shares | Capital gains | Nil cost | Holding period starts on the bonus allotment date |
| Domestic-company buyback on or after 1 October 2024 | Amount received is deemed dividend; a separate capital computation is required | Actual cost of extinguished shares for the capital computation | Confirm the buyback transaction date and that the payer is a domestic company |
| Domestic-company buyback before 1 October 2024 | Former section 115QA regime may apply to the company in the circumstances covered by that section | Use the law applicable to that earlier transaction | Do not apply the post-1 October 2024 treatment retrospectively |
How to calculate ordinary dividend tax
1. Start with the gross dividend
Use the gross dividend credited or declared in the company statement, broker report, dividend certificate, Form 26AS or Annual Information Statement. Do not treat tax deducted at source (TDS) as the dividend itself. TDS is a credit against your eventual tax liability, provided it is reflected correctly in your tax records.
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2. Report it under Income from Other Sources
Dividend income is taxable in the recipient’s hands under the head “Income from Other Sources.” Include the gross amount in the corresponding income-tax-return section rather than adding it to a capital-gains schedule. The tax rate is normally determined by the applicable slab or special rate for the taxpayer, subject to residence status and any treaty rule that applies to a non-resident.
3. Reconcile TDS and withholding records
Compare the company or registrar certificate with Form 26AS and the AIS. If the statement shows ₹10,000 of gross dividend and ₹1,000 of TDS, the income is ₹10,000 and the ₹1,000 is claimed as tax credit; it is not a final 10% tax calculation. Resolve mismatches before filing so that the credit claimed does not exceed the amount actually reported by the payer.
4. Check residence and treaty position
A resident and a non-resident may have different rate and reporting outcomes. A non-resident should check whether an applicable tax treaty changes the rate and what documentation is required. The domestic calculation in this guide does not replace that treaty analysis.
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Assume a company statement reports a gross dividend of ₹24,000 and TDS of ₹2,400. Report ₹24,000 as dividend income under Income from Other Sources and claim ₹2,400 as TDS credit, subject to the amount appearing in the official tax records. The final tax on the ₹24,000 depends on the taxpayer’s applicable slab or special rate and other income; the statement alone does not establish a universal tax amount.
How to calculate a domestic-company buyback after 1 October 2024
The law separates the buyback receipt into two computations. For a domestic-company buyback on or after 1 October 2024, the amount received by the shareholder is treated as deemed dividend. Separately, for capital-gains purposes, section 46A deems the consideration for the extinguished shares to be nil. This can produce a capital loss equal to the cost of those shares, subject to the normal capital-loss rules and reporting requirements.
Step 1: Verify the transaction date and payer
Check the buyback acceptance, settlement or transaction records and identify the legal entity paying the amount. The 1 October 2024 split applies to domestic-company buybacks. A foreign-company transaction, a different corporate action or an incorrectly recorded date can lead to a different analysis.
Step 2: Compute deemed-dividend income
Use the amount actually received from the company as the deemed-dividend amount. Do not subtract the acquisition cost of the shares from this dividend figure. The receipt belongs in the dividend or Income from Other Sources analysis rather than being reduced by the share cost.
Step 3: Identify the cost of shares extinguished
Determine the acquisition cost of the specific shares accepted and extinguished in the buyback. Preserve purchase contract notes, corporate-action records and lot details. If shares were acquired in several lots, retain the lot-level calculation that supports the cost assigned to the shares extinguished.
Step 4: Run the separate capital-gains computation
Because section 46A deems consideration to be nil, the capital computation is generally:
Nil deemed consideration − cost of the extinguished shares = capital loss (where the cost is greater than zero).
This loss is separate from the deemed-dividend income. It does not reduce the dividend amount when that income is reported. Whether the loss can be set off or carried forward depends on the normal capital-loss rules and the return requirements in force for the relevant year.
Step 5: Report and retain evidence
Keep the buyback offer or acceptance statement, settlement statement, bank credit, purchase records, broker contract notes and the company’s tax certificate. Verify that the deemed-dividend amount and TDS, if any, agree with Form 26AS and the AIS. Check the current income-tax-return instructions for the correct income and capital-gains schedules and for disclosure or carry-forward requirements.
Worked buyback illustration
Suppose a domestic company pays ₹80,000 for shares accepted in a buyback after 1 October 2024. The shares originally cost ₹52,000. The ₹80,000 received is considered deemed dividend; the ₹52,000 cost is not subtracted from that dividend. For the separate capital computation, consideration is deemed nil, so the result is ₹0 − ₹52,000, or a ₹52,000 capital loss, subject to the ordinary rules for classification, set-off and carry-forward. The illustration does not determine the taxpayer’s final bill because residence, other income, the nature of the shares and return-year rules still matter.
What changed from the earlier buyback regime
For domestic-company buybacks before 1 October 2024, section 115QA imposed an additional tax of 20% on distributed buyback income in the circumstances covered by that section. That was the former regime. Do not apply the post-1 October 2024 shareholder-level deemed-dividend and nil-consideration method to an earlier buyback merely because the return is being filed now. Use the law applicable on the actual buyback date and retain the contemporaneous company documentation.
How bonus shares are taxed
At the time of allotment
Bonus shares allotted to equity shareholders are excluded from dividend. Receiving them without paying for them therefore generally does not create dividend income at allotment. Record the number of shares and the exact allotment date when the corporate action occurs; that information controls the later capital-gains calculation.
Cost of a bonus share
A bonus share allotted without payment has a nil cost of acquisition under section 55(2)(aa)(iiia). Do not spread the original purchase cost across the original and bonus quantities. The original shares retain their actual paid cost, while each bonus share starts with zero cost.
Holding period of each lot
The holding period is tested separately. An original share uses its own acquisition date. A bonus share uses the allotment date. A sale containing both lots can therefore include an original-share gain or loss with one character and a bonus-share gain or loss with another. A bonus share is not automatically long term or short term simply because the original holding is old.
Sale calculation
For each lot, calculate the sale proceeds, subtract the applicable transfer expenses permitted under the rules, and subtract the lot’s cost. For a bonus lot, the cost is zero, so the relevant gain is generally the eligible net sale proceeds. For the original lot, use the actual cost attributable to the shares sold. Keep separate quantities, dates and costs instead of combining all shares into one average-cost figure unless the applicable reporting rules specifically require another method.
Current listed-equity capital-gains rates
For qualifying STT-paid listed-equity transfers made on or after 23 July 2024, the statutory concessional rates are:
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| Gain type | Rate and threshold | Conditions and limits |
|---|---|---|
| Section 111A short-term capital gain | 20% | Applies only when the transfer satisfies the section 111A conditions, including the relevant STT-paid listed-equity requirements |
| Section 112A long-term capital gain | 12.5% on aggregate qualifying gains above ₹1,25,000 for the year | The ₹1,25,000 threshold is an annual aggregate threshold for qualifying gains; section 112A conditions must be met |
These are not universal rates for every share sale. Unlisted shares, transactions that do not meet the STT conditions, non-resident or treaty cases, and shares treated as business assets may require a different calculation. Apply the rate in force on the sale date and verify the security type, STT status and taxpayer category.
Applying the annual section 112A threshold
Aggregate qualifying section 112A long-term gains for the relevant year before applying the ₹1,25,000 threshold. Only the amount above that threshold is taxed at 12.5% under the stated regime. A taxpayer with ₹90,000 of qualifying long-term gain has no amount above that threshold under this calculation; a taxpayer with ₹1,70,000 has ₹45,000 above it. This example addresses the threshold only and does not determine tax on other income or gains outside section 112A.
Worked bonus-share example
Assume an investor bought 100 shares at ₹100 each, for a paid cost of ₹10,000. The company later allotted 100 bonus shares. The investor then sold 50 original shares and 50 bonus shares.
| Lot sold | Quantity | Cost per share | Allocated cost | Holding-period start |
|---|---|---|---|---|
| Original shares | 50 | ₹100 paid cost | ₹5,000 | Original purchase date |
| Bonus shares | 50 | ₹0 | ₹0 | Bonus allotment date |
If the sale proceeds are ₹12,000 for the original lot and ₹12,000 for the bonus lot, the original-lot gain before permitted transfer expenses is ₹12,000 − ₹5,000 = ₹7,000. The bonus-lot gain before permitted transfer expenses is ₹12,000 − ₹0 = ₹12,000. Classify each result as short term or long term using its own holding-period start date and the statutory rule applicable on the sale date. Then test whether the transaction qualifies for section 111A or 112A, including STT requirements. The example demonstrates lot allocation; it is not a personal tax quote.
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- Broker contract notes showing purchases, sales, STT and transaction dates.
- Corporate-action statements showing the bonus quantity and allotment date.
- Buyback offer, acceptance and settlement statements, including the shares extinguished.
- Company dividend certificates and broker income statements showing gross dividends and TDS.
- Form 26AS and AIS entries used to reconcile dividend, buyback and TDS data.
- A lot-level worksheet separating original shares, bonus shares and buyback-extinguished shares.
Store the records for the applicable retention period and preserve the calculation behind every number reported in the return. A single broker statement may combine original and bonus quantities, so reconcile it with the corporate-action notice before calculating cost or holding period.
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Common mistakes and how to avoid them
Subtracting share cost from a post-2024 buyback dividend
The buyback amount received is deemed dividend without deducting acquisition cost. The cost belongs in the separate nil-consideration capital computation.
Giving bonus shares a market-value cost
A bonus share allotted without payment has nil cost under section 55(2)(aa)(iiia). The market price on the allotment date is not the acquisition cost for this purpose.
Using the original purchase date for bonus shares
Bonus shares start their holding period on the allotment date. Use the original purchase date only for the original lot.
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Applying 20% or 12.5% to every share sale
The section 111A and 112A rates apply only when their statutory conditions are met. Check listed status, STT, transfer date, holding-period classification, residence and whether the shares are held as investments rather than business stock.
Treating TDS as the final dividend tax
TDS is a credit, not necessarily the final rate. Report gross dividend income and claim only the credit supported by Form 26AS, AIS and the payer’s certificate.
Ignoring the transaction-date split
Buybacks before and after 1 October 2024 can fall under different regimes, and listed-equity rates changed for transfers on or after 23 July 2024. Confirm dates from settlement and corporate-action records rather than relying on the financial year alone.
A practical filing checklist
- Sort every receipt into dividend, buyback or share-sale categories.
- For dividends, record the gross amount under Income from Other Sources and reconcile TDS.
- For a post-1 October 2024 domestic-company buyback, record the amount received as deemed dividend and separately calculate nil consideration minus the cost of extinguished shares.
- For bonus shares, record allotment date and quantity, assign zero cost, and keep the original lot’s paid cost unchanged.
- Split any sale by lot so that original and bonus holding periods are tested independently.
- Check the transfer date, listed status, STT and taxpayer status before using section 111A or 112A rates.
- Aggregate qualifying section 112A gains and apply the ₹1,25,000 annual threshold where relevant.
- Review capital-loss set-off and carry-forward rules and the current ITR instructions before submitting the return.
Where a buyback loss, treaty claim, mixed lot history or business-income classification is involved, confirm the return treatment with a qualified tax professional. The Income Tax Department’s rules do not produce one universal tax amount without the taxpayer’s dates, residence, security details and other income.
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