For companies and promoters, the buyback tax regime continues to represent stability rather than change, with overall liabilities largely unaffected. Under the earlier system, buyback proceeds were treated as dividend income, requiring promoters to pay tax at 22%.
This was structured to prevent tax arbitrage, as promoters could otherwise have used buybacks to avoid dividend distribution tax and reduce their liability.
Restoring Fair Taxation
Manvinder Singh, Partner at JSA Advocates & Solicitors, said, “The Finance Bill, 2026 proposes to restore the taxation of share buybacks under the capital gains framework by correcting an unintended anomaly introduced in October 2024, where even the original investment was taxed as income. This change brings fairness and repositions buybacks as a legitimate mechanism for returning capital.”
With this correction, the cost of acquisition will no longer be taxed. Only the actual gain will be subject to capital gains tax, similar to the sale of shares. This makes buybacks once again a viable and tax-efficient option for companies to return capital to shareholders, alongside dividends.
Promoter Liability Unchanged
Promoters, however, remain subject to an additional buyback tax, keeping their liability broadly unchanged. In effect, the government has preserved the status quo, ensuring promoters continue to pay at the same marginal rates as before.
In a post budget press briefing, Revenue Secretary Arvind Shrivastava said, “For promoters, the relief does not apply.
Their tax treatment remains aligned with dividend taxation, reflecting the government’s intent to prevent misuse while offering genuine relief to retail and institutional investors.”