12/06/2026
In just eighteen months, India has taxed the same transaction in three completely different ways. If you hold shares in any company that has done — or plans — a buyback, knowing which regime applies to you is now essential.
Until 30 September 2024, the company paid the tax. Under Section 115QA of the Income-tax Act, 1961, domestic companies bore an effective levy of about 23.3 per cent, while shareholders received their proceeds fully exempt under Section 10(34A).
Then came the harsh middle era. From 1 October 2024, the Finance (No. 2) Act, 2024 treated the entire buyback proceeds — not just the gain — as deemed dividend under Section 2(22)(f), taxed at slab rates as high as 35.88 per cent. The cost of your shares was not deductible; it became a notional capital loss under Section 46A, usable only against capital gains over eight years. The market's verdict was swift: buybacks nearly disappeared.
Now the circle closes. From 1 April 2026, the Finance Act, 2026 restores capital gains treatment. Retail investors pay tax only on their actual profit — long-term gains at 12.5 per cent under Section 197 of the Income Tax Act, 2025. But promoters face an additional tax that takes their effective burden to 22 per cent for corporate promoters and 30 per cent for individuals, plus a 12 per cent surcharge on the additional component — applicable to buybacks under Section 68 of the Companies Act, 2013.
The strategic consequence is already visible: promoters will prefer offers for sale and open-market exits at 12.5 per cent over tendering at 30. And when promoters do not tender, their stake quietly rises.
Before you tender shares in any buyback — or file returns covering one — confirm which era your transaction belongs to.
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