Retail investors are likely to pay less tax on share buybacks after the Union Budget 2026–27 announced that buyback proceeds will now be taxed as capital gains, instead of being added to personal income and taxed at income tax slab rates, which ranges from 5% to 30%.
“It is proposed that the consideration received by a shareholder on buy-back of shares by a company shall be chargeable to tax under the head ‘Capital Gains’ instead of being treated as dividend income,” Finance Minister Nirmala Sitharaman said in her Budget speech.
The move marks a reversal of the buyback taxation framework introduced in 2024, under which buyback proceeds were treated as dividend income and taxed in the hands of shareholders at applicable slab rates. Amit Maheshwari, managing partner, AKM Global, a tax and consulting firm, explained that earlier, share buybacks were taxed mainly at the company level, with shareholders facing uneven or unclear outcomes.
“After the 2024 change, buyback proceeds are taxed in the hands of shareholders, often at applicable slab rates, on the entire receipt without allowing deduction for the cost of acquisition,” he added.
Streamlining Capital Allocation
A buyback is a process by which a company purchases its own shares from the market, offering an exit route to shareholders. Indian companies bought back shares worth 7,897 crore in FY25. Ashwani Dhanawat, executive director and chief investment officer, Shriram General Insurance, said the change has corrected long-standing distortions for retail investors.
“Overall, it streamlines corporate capital allocation, reduces differential treatment, and could encourage more transparent shareholder returns without excessive complexity,” he said.
To prevent misuse through tax arbitrage, the government has also introduced an additional buyback tax for promoters, resulting in an effective tax rate of about 22% for corporate promoters and 30% for individual promoters. “This aligns buybacks with normal share sales for minority and retail interests while safeguarding revenue,” Maheshwari said.
TCS relief for travel, education remittances The Budget also announced several ease of living measures that directly impact individual taxpayers. Tax Collected at Source (TCS) on foreign travel, overseas education and medical treatment abroad under the Liberalised Remittance Scheme (LRS) has been cut to a flat 2% from the earlier 5-20% rates.
This is expected to ease cash-flow pressures for families remitting money abroad. Indians remitted $19.10 billion overseas between April and November 2025, with travel and education accounting for 66% of total outflows.
Simpler TDS norms Compliance
In the previous Budget, the government had raised the TCS threshold for LRS remittances to10 lakh from 7 lakh. Simpler TDS norms Compliance requirements for individual taxpayers were also eased by centralising the submission of Forms 15G and 15H with NSDL or CDSL.
The depositories will share the information with all relevant banks and institutions, eliminating the need for taxpayers to submit the forms separately to each entity. Form 15G (for individuals below 60 years) and Form 15H (60 years and above) are self-declaration forms that help taxpayers avoid unnecessary TDS (tax deduction at source) on certain incomes.
The Budget also simplified the tax process for non-residents selling property in India by easing the TDS compliance for buyers. It has proposed that TDS on such transactions can now be deducted and deposited using the resident buyer’s PAN, removing the need to obtain a separate TAN.
Small taxpayers like students, young professionals, tech employees, relocated NRIs will be given a one-time six-month foreign asset disclosure scheme to disclose income or assets where undisclosed foreign assets/ income is up to1 crore. In case of foreign assets that were taxed but not reported, the limit has been kept at Rs 5 crore.