Buyback Boom Is Over: Tax Changes Trigger A 79% Slump In Issuances In 2025

India's share buyback market is facing a historic slump in 2025, with activity collapsing after the government dismantled the tax arbitrage that had long made buybacks an attractive tool for returning cash to shareholders. The drop is sharper than anything recorded during the pandemic or previous market downturns, signalling a deeper structural shift.

79% Drop in Activity; Infosys Masks The Real Collapse

Buyback issuances have fallen nearly 79% this year. Only 10 companies have announced buybacks so far, compared with 47 in 2024.

While the headline value for 2025 stands at Rs 19,215 crore, this largely comprised of the the Rs 18,000-crore Infosys buyback. Stripping out Infosys, the market-wide buyback value is barely Rs 1,215 crore, down drastically from Rs 13,512 crore last year.

This makes 2025 the weakest year for buybacks in almost a decade.

Tax Switch That Upended A Popular Strategy

The steep decline follows the removal of the Buyback Distribution Tax (BDT) in October 2024. Under the old system, companies paid tax before buying back shares, and investors received the entire payout tax-free, making buybacks more efficient than dividends.

The new regime reverses this advantage. The entire buyback amount is now classified as dividend income and taxed directly in the hands of investors. For those in higher slabs, the effective tax can reach over 35%, destroying the primary incentive behind participating in buybacks

Promoters Step Back; Corporate Playbook Changes

Companies may be deferring or scrapping buyback plans, and promoters participants may be avoiding tenders because of higher personal tax costs.

The Infosys buyback highlighted this shift. Despite the programme's massive Rs 18,000 crore size, promoters chose not to tender any shares. While this signals confidence in the company's long-term performance, it also reflects the increased tax burden under the revised rules.

Historical Data Shows 2025 Is An Outlier

From 2018 to 2023, India's buyback landscape remained strong despite economic slowdowns, volatile markets, and even the Covid-19 crisis. The number of annual buybacks consistently ranged between 40 and 67, and buyback values regularly crossed Rs 30,000–Rs 45,000 crore.

The dramatic collapse in 2025 stands out even against years marked by global uncertainty. Weak equity sentiment may have contributed this time, but earlier downturns like 2019 slowdown and 2020 pandemic shock still saw significantly more activity. The current downturn seems clearly policy-driven.

Long-Term Effects: A Shift Towards Dividends Ahead

With the tax advantage gone, buybacks are no longer the most efficient tool for capital distribution. Companies are increasingly likely to shift back to traditional dividends or explore alternative capital return options.

Early data suggests the buyback market may remain subdued unless the tax policy is revisited. The 2025 numbers indicate the end of a buyback-heavy era - a trend once powered by favourable tax treatment but now fundamentally reset.