What is the revised provision?
Proceeds from buy back of shares shall be taxed as Capital Gains in the hands of shareholders. This is with effect from 1st April 2026.
What was the old provision?
Company paid buyback tax @ 20% (plus surcharge & cess) on the shares that are bought back. Consequently, the Proceeds of buy back, received by shareholders were tax-free in their hands.
From POV of shareholders, this made buyback more attractive than dividend, since dividend were taxable in shareholders’ hands, while buyback isn't.
Whats the tax rate that shall be applicable on buyback from now on?
| Caital gain | Tax rate for listed shares bought back |
Tax rate for unlisted shares bought back |
|---|---|---|
| LTCG | 12.5% flat tax rate without any indexation benefit. |
20% with indexation benefit |
| STCG | 20% tax rate | At tax slabs applicable for the individual |
Need for this amendment as quoted by the Government
Rationale as stated in the memorandum is that, the change would:
(a) Align the taxation of buybacks with international practice,
(b) Remove arbitrage opportunities in Divd vs Buy back option and
(c) It shall also ensure equitable taxation by shifting liability to the actual recipient of income.