Clause 36B explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Clause 36B reports amounts received on buyback of shares treated as dividend under section 2(22)(f) — inserted with effect from 1 October 2024 — together with the cost of acquisition of the shares bought back.
From the ICAI Guidance Note on Tax Audit (Revised 2026), the concluding edition under the Income-tax Act, 1961. Clause 36B was itself inserted in Form 3CD by the Income-tax (Eighth Amendment) Rules, 2025, notified by Notification No. 23/2025 dated 28 March 2025. For tax years under the Income-tax Act, 2025 the corresponding provision must be identified afresh.
What clause 36B asks
"(a) Whether the assessee has received any amount for buyback of shares as referred to in sub-clause (f) of clause (22) of section 2? (Yes/No) (b) If yes, please furnish the following details: (i) Amount received (in Rs.) (ii) Cost of acquisition of shares bought back"
Paragraph 71.1: sub-clause (f) was inserted in section 2(22) with effect from 1 October 2024 in order to further broaden the meaning of the term "dividend" so that it can include any payment by a company on purchase of its own shares from a shareholder in accordance with the provisions of section 68 of the Companies Act, 2013.
Paragraph 71.3: only such amount received in respect of a buyback completed on or after 1 October 2024 is reported, and no amount received in respect of a buyback completed before that date should be mentioned here. A buyback resolved and offered before that date but completed after it falls inside; one completed before it does not, however the money was received.
The section 68 framework
Paragraph 71.2 reproduces section 68 of the Companies Act, 2013, because section 2(22)(f) applies to a purchase in accordance with it. The features that matter to the auditor establishing that a buyback was validly completed:
| Requirement | Section 68 |
|---|---|
| Sources | Out of free reserves, the securities premium account, or the proceeds of an issue of shares or other specified securities — but not out of the proceeds of an earlier issue of the same kind of securities |
| Authority | Authorised by the articles, and by a special resolution — except where the buyback is 10% or less of total paid-up equity capital and free reserves and is authorised by a Board resolution |
| Ceiling | 25% or less of the aggregate of paid-up capital and free reserves; for equity shares in a financial year, the 25% is construed with respect to total paid-up equity capital in that year |
| Debt-equity | Post-buyback secured and unsecured debt not more than twice paid-up capital and free reserves, subject to a notified higher ratio |
| Other conditions | All securities fully paid-up; listed securities per SEBI regulations; others per prescribed rules; no offer within one year of the closure of the preceding offer |
| Completion and aftermath | Completed within one year of the resolution; securities extinguished and physically destroyed within seven days of completion; no further issue of the same kind within six months, save the listed exceptions; a register maintained; a return filed within thirty days of completion |
| Declaration of solvency | Filed with the Registrar and SEBI before buyback, signed by at least two directors one of whom is the managing director — not filed with SEBI by an unlisted company |
Whose accounts, and which activity
Paragraph 71.3 raises a scope question specific to individuals and HUFs. The tax auditor should take into consideration whether the amount received as buyback forms part of the accounts that are subject to tax audit. In the case of an individual or HUF there could be two separate sets of financials — one containing the business accounts and the other only personal accounts:
- if the shares and securities form part of the personal accounts, then ideally no reporting is required, as those accounts are not subjected to tax audit;
- if the business accounts hold the shares and securities, then reporting is required — even if the assessee claims the amount was earned out of tradable stock, that is, that he is in the business of trading in shares and securities.
This mirrors the scope rule at clause 33: Form 3CD reports on the books audited under section 44AB, and an item outside those books is outside the report.
Cross-verifying the clause 36B figure
Paragraph 71.4 gives four independent routes:
- the TIS or AIS, in which certain companies report buyback transactions;
- a listed company purchasing its own securities under section 68 is required to furnish details of buyback of shares from any person — other than shares bought in the open market — for an amount aggregating Rs 10 lakh or more in a financial year;
- for listed entities, the information is available in the public domain; and
- Form SH-8 and Form SH-9 filed with the Registrar of Companies.
And the procedural safeguard: as a procedural aspect, the tax auditor should always insist on disclosure of such buyback amounts from the assessee by way of a Management Representation Letter.
Item (ii) — cost of acquisition
Paragraph 71.5: the actual cost incurred to purchase such shares which has been bought back by the company should be mentioned in item (ii).
Paragraph 71.6 explains why both items matter, and it is the clearest statement in the chapter:
"Any reporting made in item (i) and/or (ii) of sub-clause (b) of Clause 36B shall have a direct nexus to the computation of total income. The reporting made in item (i) … shall have a direct effect on the computation of 'Dividend Income' of the assessee. Further, the reporting made under item (ii) … shall have a direct effect in computing the 'Capital Losses' (except where the shares are held as stock-in-trade, in which case it would have an impact on computation of income under the head 'Profits and gains of business and profession')."
Since 1 October 2024 the entire buyback consideration is dividend income in the shareholder's hands, and the cost of acquisition is not set against it. That cost instead produces a capital loss — or, where the shares were stock-in-trade, a business deduction. Clause 36B therefore feeds two different parts of the computation from two different columns, which is why reporting the net of the two figures defeats clause 36B entirely.
Worked example
| Facts | Reporting at clause 36B |
|---|---|
| Company buys back shares for Rs 40,00,000; buyback completed in December 2024; shares held in the business accounts at a cost of Rs 25,00,000 | Yes; item (i) Rs 40,00,000, item (ii) Rs 25,00,000 |
| Effect on the computation | Rs 40,00,000 as dividend income; Rs 25,00,000 producing a capital loss |
| Same shares held as stock-in-trade by a share dealer, in the business accounts | Reported; the cost affects business income rather than capital loss |
| Buyback completed in August 2024 | Not reported — completed before 1 October 2024 |
| Shares held in an individual's personal accounts, outside the audited books | Ideally no reporting |
| Verification | AIS or TIS entry, the listed company's public disclosure, and Form SH-8 and SH-9; plus a management representation letter |
Audit checklist
- Confirm the buyback was completed on or after 1 October 2024.
- Confirm it was made in accordance with section 68 of the Companies Act, 2013.
- Establish whether the shares sit in the books subject to tax audit or in personal accounts.
- Report both figures separately — amount received and cost of acquisition.
- Cross-verify against AIS or TIS, public domain disclosures, and Forms SH-8 and SH-9.
- Obtain a management representation letter on the buyback amounts.
- Note the effect on dividend income and on capital loss or business income.
- Report even where the assessee says the shares were tradable stock, if they are in the business accounts.
Common mistakes
- Reporting a buyback completed before 1 October 2024.
- Netting the cost against the amount received and reporting one figure.
- Omitting the reporting because the assessee treats the shares as trading stock.
- Reporting shares held in personal accounts outside the audited books.
- Relying only on the assessee's schedule without checking AIS, TIS or the ROC filings.