Buyback Shares – New Tax Changes for FY 2026

Buyback Shares – New Tax Changes for FY 2026–27

Investment Guru Thursday, April 02, 2026 0

Buyback Shares – New Tax Changes for FY 2026–27

CA R Jegadeesh, Founder Partner, Jegadeesh & Jefferson chartered Accountants

Companies use the buyback of shares as a method to return profits to shareholders. While different tax treatments existed earlier, a major change has been introduced in the 2026–27 Budget.

This change benefits small investors, while promoters will now have to pay additional tax.

🔄 Comparison: Old vs New Tax Rules

Period	Tax Treatment	Who Pays Tax	Key Feature
Before 2024	Buyback tax	Company	No tax for shareholders
2024–2026	Treated like dividend	Shareholder	Full amount taxed at slab rate
From 2026	Capital gains treatment	Shareholder	Tax only on profit

👉 From 2026, Buyback = Capital Gains

💰 New Tax Rules (From FY 2026–27)

1. For Regular Investors

• Long-Term Capital Gains (LTCG)

· Holding period: More than 1 year

· Tax rate: 12.5%

· Exemption: Up to ₹1.25 lakh

• Short-Term Capital Gains (STCG)

· Holding period: Less than 1 year

· Tax rate: 20%

· For unlisted shares: taxed as per slab (up to 30%)

👉 Important:
Tax is NOT on total buyback amount
👉 It is only on (Buyback price – Purchase price)

⚠️ Additional Tax for Promoters

This is the biggest change in the new law.

📌 Additional Tax Structure

Type	Capital Gains Tax	Additional Tax	Effective Tax
Corporate Promoter	CG Tax	Extra	~22%
Individual Promoter	CG Tax	Extra	~30%

👉 Promoters include anyone holding more than 10% stake, directly or indirectly.

📌 New Update: 12% Surcharge

After the Finance Bill 2026 (March 2026), CBDT clarified:

· A 12% surcharge applies on the additional tax for promoters

📌 Applicability of Additional Tax

· Applies only to Section 68 Buybacks (Companies Act 2013)

· Not applicable to:

o Cross-border entities

o Preference share redemptions

👉 Purpose: To prevent tax advantage misuse by promoters via buybacks

📊 Additional Tax Rates (As per Finance Bill 2026–27)

Gain Type	Company Promoter	Individual Promoter
Short-Term Gain	+2%	+10%
Long-Term Gain	+9.5%	+17.5%

👉 Effective tax:

· 22% (Corporate promoters)

· 30% (Individual promoters)

📉 Example

Details	Amount
Purchase Price	₹100
Buyback Price	₹150
Profit	₹50

Old Method (Dividend Taxation)

· Tax on ₹150 @ 30% = ₹45

New Method (Capital Gains)

· Tax on ₹50 @ 12.5% = ₹6.25

👉 Huge benefit for small investors

📌 Key Advantages

✔️ For Small Investors

· Lower tax burden

· Tax only on actual profit

✔️ Clarity in Taxation

· Simple calculation like capital gains

✔️ No Double Taxation

· Earlier confusion between dividend tax and capital loss is removed

⚠️ Drawbacks

· Higher tax for short-term investors

· Increased tax burden for promoters

· Tax planning may become slightly complex

📊 Buyback vs Dividend

Feature	Dividend	Buyback (2026–27)
Tax Base	Full amount	Profit only
Tax Rate	Slab (up to 30%)	12.5% (LTCG)
Investor Benefit	Lower	Higher
Promoter Advantage	None	Restricted