What is the story about?
Finance Minister Nirmala Sitharaman on Sunday, February 1, announced significant overhaul of the buyback taxation system during her Budget 2026 speech in the Lok Sabha.
An important announcement made is that proceeds from the share buyback will now be treated as capital gains for all types of shareholders, instead of being treated as dividend income.
These proceeds were taxed at the shareholders' applicable income tax slab rate, which could be as high as 30% or more. As per the new rules, they will now be taxed as per the Capital Gains tax rules.
Under the new proposal, for corporate promoters, the effective rate on buyback tax will be 22%, while that for non-corporate promoters, it will be 30%. This is being done to ensure that buybacks are now just done for tax arbitrage purposes.
Rules, part of the broader Income Tax Act, 2025, is slated to come into effect from April 1, 2026.
The earlier revision of the rules had led to a sharp decline in the number of share buybacks announced by companies.
An important announcement made is that proceeds from the share buyback will now be treated as capital gains for all types of shareholders, instead of being treated as dividend income.
These proceeds were taxed at the shareholders' applicable income tax slab rate, which could be as high as 30% or more. As per the new rules, they will now be taxed as per the Capital Gains tax rules.
Under the new proposal, for corporate promoters, the effective rate on buyback tax will be 22%, while that for non-corporate promoters, it will be 30%. This is being done to ensure that buybacks are now just done for tax arbitrage purposes.
Rules, part of the broader Income Tax Act, 2025, is slated to come into effect from April 1, 2026.
The earlier revision of the rules had led to a sharp decline in the number of share buybacks announced by companies.
