BUYBACKS: DIVIDENDS OUT, CAPITAL GAINS IN

Minority shareholders will pay 12.5% tax on long-term gains, ending the dividend-tax anomaly on buybacks

- Shipra Singh

In Budget 2026, the Centre proposed taxing share buybacks as capital gains instead of dividend income, addressing a widely criticised tax structure that led to punitive outcomes for promoters and shareholders, as the entire buyback proceeds, including the acquisition cost, were taxed at slab rates. If implemented, non-promoter employees will pay 12.5% tax on long-term capital gains (LTCG) for listed shares held for over one year.

However, to prevent high-networth individual (HNI) promoters from using buybacks as a primary route to extract profits, it also proposed a higher capital gains tax rate of 30% for such promoters, after the shift from dividend income to capital gains, Ashish Karundia, founder of Ashish Karundia & Co, said.