The government in another Amendment to the Finance Bill 2026 has introduced flat 12% surcharge on buyback gains for individuals. This move could increase the tax burden for many investors, especially those in lower income brackets.
Earlier, surcharge on buyback gains was linked to income slabs, which meant investors with lower total income paid a lower surcharge. However, with the introduction of a flat 12% surcharge, individuals with income below Rs 1 crore may now see a higher tax outgo compared to the earlier structure. On the other hand, for investors with buyback gains above Rs 1 crore, the surcharge has been reduced from 15% to 12%, resulting in some tax relief for high-income investors.
Market experts say the change could make share buybacks less attractive compared to dividends, as the tax advantage that buybacks previously enjoyed may reduce under the new surcharge structure.
The impact is expected to be higher in the case of small and mid-sized buybacks, where a large portion of participating shareholders typically fall in lower income brackets and may now face a higher tax burden. Corporate shareholders may also see a higher tax burden in lower brackets due to the flat surcharge, which could influence how companies and investors evaluate buybacks versus dividends going forward.
ALSO READ: Budget 2026: Buyback For All Shareholders To Be Taxed As Capital Gains, Announces FM Sitharaman
The government during the Budget had proposed that buyback proceeds for all categories of shareholders will now be taxed as capital gains, moving away from earlier mechanisms that treated different shareholders differently.
Announcing a major change in the taxation of share buybacks in her Budget speech, Finance Minister Nirmala Sitharaman explained that under the new structure, corporate promoters will face an effective tax rate of 22%, while non‑corporate promoters will be taxed at 30% on buyback transactions.
The move aims to streamline taxation, reduce arbitrage between shareholder classes, and ensure a more uniform and transparent tax treatment of buyback‑related income.
The updated regulations—framed under the new Income Tax Act, 2025—are scheduled to come into force on April 1, 2026.
In the past, earlier changes to these rules had resulted in a noticeable drop in the number of share buyback announcements made by companies.
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