Section 46A of ITA, 1961 : Section 46A: Capital Gains On Purchase By Company Of Its Own Shares Or Other Specified Securities

Explanation using Example

Imagine that Rita holds 100 shares of XYZ Ltd., which she originally purchased for a total of ₹50,000. In 2023, XYZ Ltd. decides to buy back shares from its shareholders and offers to purchase Rita's shares for ₹80,000. Rita accepts the offer and sells her shares back to the company. According to Section 46A of The Income-tax Act, 1961, the capital gain for Rita would be the difference between the sale consideration and the cost of acquisition. Therefore, Rita's capital gain would be ₹80,000 (consideration received) minus ₹50,000 (cost of acquisition), which equals ₹30,000. This capital gain would be taxable in the financial year 2023-24, the year in which the shares were bought back by XYZ Ltd.