Finance minister Nirmala Sitharaman announced a major overhaul of the tax treatment of share buybacks today, marking a shift in how India taxes capital returns. The changes are aimed at curbing tax arbitrage while protecting minority shareholders. Under the new regime, the effective tax rate on share buyback gains will be 22% for promoters which are domestic companies and 30% for promoters which are not domestic companies. The announcement was one of the most consequential capital market reforms in the Union Budget 2026-27, with implications for listed companies, promoters, retail investors and future capital allocation strategies. “Under the earlier framework, a shareholder who bought a share at INR 500 and tendered it in a buyback at INR 800 was taxed on the full INR 800, even though the real gain was only INR 300. The shift to capital gains taxation corrects this distortion by taxing only the profit after adjusting for acquisition cost, which materially improves outcomes for retail and minority shareholders,” said Jay Prakash Gupta, founder and CEO of stock broking unicorn Dhan. Capital Gains For All, Higher Tax For Promoters Under the new proposal, consideration received on share buybacks will be taxed as capital gains for all shareholders,… Read MoreInc42 Media
