Budget 2026: Finance Minister Nirmala Sitharaman unveiled Budget 2026 on Sunday, Feb. 1, 2026, and proposed capital gains regime for all shareholders and a new promoter level levy to end tax arbitrage. The move aims to protect minority investors and stop companies from routing payouts through buybacks instead of dividends. The Budget proposes that all buybacks will now be taxed as capital gains, replacing the dividend like treatment introduced in 2024.
In order to disincentivise promoters from using buybacks to reduce tax liability, FM Sitharaman has announced an additional buyback tax on promoters. The Budget proposes that all buybacks will now be taxed as capital gains, replacing the dividend like treatment introduced in 2024. The change will push the effective tax burden to 22% for the corporate promoters and 30% for non corporate promoters. The government believes this will reduce distortions and ensure more uniform treatment of shareholder payouts.
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What is buyback tax? All you need to know
To be clear, the tax on buyback of shares is calculated by measuring the difference between what the company pays shareholders when it buys back the shares and the amount it originally received when those shares were first issued. A key provision that remains is the treatment of share acquisition cost. The cost of shares tendered in a buyback will continue to be treated as a capital loss, either short term or long term, depending on the holding period. Investors can set off these losses against other capital gains or carry them forward for up to eight years, providing some relief in the new system.
Here's how the new Budget rules would work
1) Small or minority shareholder
For example, you are a retail investor in ABC Ltd.
According to NDTV, say you bought 100 shares at Rs 700 each (cost = Rs 70,000).ABC announces a buyback at Rs 1,000 per share.You tender all 100 shares and receive Rs 1,00,000.
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Under the new rules:
The gain = Rs 1,00,000 minus Rs 70,000 = Rs 30,000
This Rs 30,000 is taxed as capital gains (short term or long term).
The new budget rule puts all shareholders into a clean capital gains system and adds a higher promoter level levy so buybacks no longer offer low tax arbitrage versus dividends.
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