New Buyback Tax Rules - Impact on Investors & ProStocks Report Changes

1. Buyback Proceeds Are Credited Directly to Your Bank Account

Under the updated rules, the company making the buyback will transfer the buyback amount directly to your bank account. The funds do not flow through your trading account with ProStocks.

At the time of making this payment, the company will deduct TDS (Tax Deducted at Source) on the buyback proceeds:

• Resident investors: TDS is generally deducted at 10%.
• NRI investors: Higher TDS applies (around 20% plus applicable surcharge and cess, depending on category).

The TDS deducted by the company will be visible in your AIS (Annual Information Statement) on the Income Tax Portal. However, this information does not appear instantly – there is usually a time lag before it reflects in AIS.

2. Entire Buyback Proceeds Are Treated as ‘Deemed Dividend’

Under the new buyback tax regime, the amount you receive from the buyback is treated as:

This means the full buyback proceeds are added to your total income and are taxed at your normal slab rate, along with your salary, business income, rental income, etc.

Illustration:

3. What Happens to the Cost of Acquisition?

Because the entire buyback proceeds are treated as “deemed dividend”, the amount you originally paid to buy those shares (the cost of acquisition) does not get adjusted against the buyback proceeds for dividend taxation.

Instead, the entire cost of acquisition is treated as a capital loss:

• It will be a Short-Term Capital Loss (STCL) if the holding period of the shares was less than 12 months.
• It will be a Long-Term Capital Loss (LTCL) if the holding period was 12 months or more.

You can set off this capital loss as follows:

• Short-Term Capital Loss (STCL): Can be adjusted against both Short-Term Capital Gains (STCG) and Long-Term Capital Gains (LTCG).
• Long-Term Capital Loss (LTCL): Can be adjusted only against Long-Term Capital Gains (LTCG).
• Unadjusted capital losses can generally be carried forward for up to 8 assessment years, subject to filing your ITR within due dates.

4. Changes in ProStocks Short-Term / Long-Term Capital Gain Report

To correctly reflect the new tax treatment, ProStocks has made an important change to the Short-Term / Long-Term Capital Gain Report available in your Back Office.

This has a very specific purpose – it ensures that the entire cost of acquisition of the shares accepted in buyback appears as a capital loss in your report, which you can then:

• Set off against other capital gains; or
• Carry forward, if not fully utilised in the same year.

The economic reality remains that your buyback proceeds were taxed as deemed dividend under Income from Other Sources, and the cost of acquisition is separately available as a capital loss for set-off / carry-forward.

In the report, you will clearly see:

• Number of shares accepted under buyback.
• Sale price shown as ₹0.001 per share (for capital gain computation only).
• Resulting capital loss equal to (cost of acquisition – ₹0.001).
• Classification of the loss as STCL or LTCL based on your actual holding period.

5. Key Takeaways for ProStocks Clients

• Buyback money comes directly to your bank account from the company.
• The company deducts TDS; the rate differs for residents and NRIs.
• TDS will appear in AIS on the Income Tax Portal, but with a time lag.
• The entire buyback amount is taxed as “Deemed Dividend” under Income from Other Sources.
• Your cost of acquisition is treated as a capital loss (short-term or long-term).
• Long-Term Capital Loss can be set off only against LTCG, while Short-Term Capital Loss can be set off against both STCG and LTCG.
• ProStocks has updated the Short-Term / Long-Term report to show buyback-accepted shares as sold at ₹0.001 so that your entire cost becomes a visible capital loss.

If you are unsure about how to use this information while filing your tax return, please consult your tax advisor or chartered accountant with a copy of your ProStocks capital gain report and AIS.