Quick Summary
The taxation framework for buyback of shares is set to undergo a significant change from 1st April 2026, with the government proposing a shift from dividend-based taxation to capital gains taxation under the Income tax Act, 2025. The move aims to rationalise the existing structure and address concer
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FAQ :
The change will come into effect from 1st April 2026, applying from Tax Year 2026-27 onwards.
Currently, consideration received by a shareholder on buyback is treated as dividend income and taxed at applicable slab rates, while the cost of acquisition is recognised as a capital loss.
The consideration received on buyback of shares will be taxed under the head 'Capital Gains' instead of being treated as dividend income.
Yes, promoters will face a differential tax treatment. Individual promoters will have an effective tax rate of 30%, and promoter companies will have an effective tax liability of 22%.
The aim is to rationalise the existing tax structure, address concerns around differential tax outcomes, simplify tax laws, and reduce interpretational disputes.
For non-promoter shareholders, the move to capital gains taxation could result in a more logical and predictable tax outcome, particularly for long-term holdings.
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