Skip to main content

Buybacks to be Taxed as Capital Gains; Retail Investors Benefit

By

 The budget has proposed a major reset in the taxation of share buybacks, shifting them from being treated as ‘deemed dividends’ back to capital gains. Under the proposal, buyback proceeds for individual shareholders will be taxed at 12.5%, significantly lower than the current slab-based rate of up to 30%. Tax treatment for promoters has also been rationalised: foreign promoters will face a 30% levy, while Indian promoters will continue to be taxed at 22%. Tax experts said the change corrects a distortion in equity taxation and restores buybacks as a more efficient capital-return mechanism. “With effect from October 2024, buyback proceeds were treated as dividends, taxed at regular rates, while the cost of acquisition was recognised separately as a capital loss. Less than 18 months later, the old system has been restored, but with added complexity—distinguishing between promoters, who do not get concessional rates, and non-promoter shareholders, who benefit from the lower capital gains rate,” said Ketan Dalal, managing director, Katalyst Advisors Independent directors said buybacks would now be used primarily to address capital-structure inefficiencies rather than for tax arbitrage.“Promoters must recognise that buybacks are no longer a tax-efficient substitute for dividends,” said Shailesh Haribhakti Associates chairman Shailesh Haribhakti.

Last year, 14 companies bought back shares worth `19,711 crore. India had earlier seen a record `55,273-crore buyback by 50 companies in 2017, according to Prime Database. Under the proposed framework, the cost of acquisition will now be adjusted within the capital gains computation, removing the split-character treatment that had created distortions under the current law.Dalal said the revised structure materially alters the economics of buybacks, particularly for promoters. “The framework places promoters in a significantly higher tax bracket, with buyback gains effectively taxed at rates closer to normal income rather than preferential capital gains. This creates a strong disincentive for buybacks in companies with high promoter shareholding,” he said

 

-The Economic Times 02nd February,2026

 

Comments

Post a Comment

Popular posts from this blog

Data storage norm splits digital payments industry

By
Data storage norm splits digital payments industry  India’s nascent digital payment industry could be thrown into disarray due to the demand by the Reserve Bank of India (RBI) that all user data be stored within the country, fears an industry grouping, which has termed the decision as “heavy-handed”, even as others, including the country’s largest digital payment provider Paytm, have hailed the move.  In a bid to narrow the growing schism, the industry is planning to send a formal representation to the regulator highlighting its concerns, a top official told ET.  “We are trying to build a consensus on the issue," said the person adding that the representation to the central bank will be ready this week.  RBI on April 6, mandated all payment companies—global and local—to set up data storage facilities within India by October. The stringent six-month deadline has attracted the ire of several sections of the industry that fear it will lead to a disruption of wel...
18 comments
Read more

Offer’s for all of you

By
Great Bumper Dhamaka Offer’s for all of you... It's Time to see your Business Online, WebeCreator Offer Website Designing with domain & Email @ nominal charges. For a year For More information visit us http://goo.gl/KlpppF call on 9890151261/9773197533  drop a mail to sales@webecreator.com
Post a Comment
Read more

Sebi to finalise options in commodities today

By
The Commodity Derivatives Advisory Committee of the Securities and Exchange Board of India ( Sebi) will meet on Friday with senior officials of the latter, to give a final shape to the rules on options trading in commodity futures, beside revising the warehousing norms to ensure good delivery on settlement. The decision taken, after discussing with the advisory committee, will be placed before the regulator’s board, to finalise the regulations. According to knowledgeable sources, three commodities in each segment, agricultural and non- agricultural, have been proposed for introducing options. It appears commodities from the soya and guar segments are preferred in the former. From the non- agri segment, it is likely that gold, silver and crude oil will be finalised. All these These have better liquidity and both the National Commodity and Derivatives Exchange and the Multi Commodity Exchange, respectively, will be able to introduce the options. In the equity segments, options ar...
17 comments
Read more