1 week ago

India’s Buyback Tax Shift Creates Three Regimes in 18 Months

India changed the tax rules for share buybacks three times in 18 months.

Before October 2024, the company generally paid the buyback tax.

Shareholders were broadly exempt from tax on the buyback income.

From October 2024, shareholders had to treat the full amount they received as dividend income.

They could not subtract what they originally paid for the shares from that dividend amount.

The original purchase cost was instead treated as a separate capital loss.

From April 2026, the rules treat the transaction more like selling shares.

This means the taxable amount is generally the sale proceeds minus the original cost, but promoter shareholders face additional taxes.

Key facts

Old regime: Before October 2024, companies paid buyback tax under Section 115QA, at an effective rate of about 23.296% including surcharge and cess.
Interim regime: From October 1, 2024, the buyback tax was abolished and the full shareholder consideration was treated as deemed dividend under Section 2(22)(f).
Cost treatment: During the interim regime, acquisition cost could not be deducted from dividend income and was recognized separately as a capital loss.
New regime: From April 1, 2026, Section 69(1)(2) broadly taxes the buyback consideration minus acquisition cost as a capital gain.
Listed-share rates: Non-promoter shareholders may face 12.5% long-term or 20% short-term capital gains tax, subject to applicable conditions.
Promoter rates: The additional burden may be around 22% for corporate promoters and 30% for non-corporate promoters, including applicable surcharge and cess.
Investor impact: The timing of a buyback can materially affect the final tax outcome for investors and companies.

businesstoday.in · 1 week ago