The Budget 2026 introduced major changes to taxation on share buybacks. Retail investors will now pay capital gains tax on earnings from buybacks instead of including them in total income.
For promoters, the tax rates are also updated: 22% for corporate promoters and 30% for non-corporate promoters. Let’s look at the details.
Changes for Retail Investors
Current Rules
Earlier, earnings from a buyback were treated as dividend income. This meant they were added to your total income, and taxes were charged according to your income tax bracket. High-income earners could pay up to 30% tax on these earnings.
New Rules from Budget 2026
Now, buyback income will be considered capital gains, which could reduce your net tax:
Short-term capital gains (STCG): 20% tax if shares are held for less than 12 months
Long-term capital gains (LTCG): 12.5% tax if shares are held for more than 12 months
LTCG exemption: Up to ₹1.25 lakh of LTCG is tax-free
This change is expected to be a major benefit for retail investors.
Changes for Promoters
Promoters have different tax rules:
Corporate promoters: 22% capital gains tax on buybacks of domestic companies
Non-corporate promoters: 30% capital gains tax on buybacks of non-domestic companies
Karthick Jonagadla, CEO of Smallcase Quantace Research, noted that companies might now focus on dividends instead of buybacks due to the new tax structure.
Understanding Buybacks
A buyback is when a company repurchases its own shares from shareholders instead of paying dividends. Taxes on buybacks are calculated based on the net amount paid at the time of the original share issue.
Why Companies Do Buybacks
Companies buy back shares when they have excess cash and no major investments planned. Benefits include:
Reducing the number of shares outstanding
Increasing earnings per share (EPS)
Strengthening the stock’s value
Showing confidence in the company’s fundamentals and stock value
