Share buyback rules before April 2026: Entire payout taxed at slab rate, not capital gains

Taxation rules for Buyback shares

• Buybacks before April 2026 are taxed as dividends at your slab rate
• No deduction for share cost; capital loss can be set off against capital gains
• Budget changes from April 2026 will tax buybacks as capital gains

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Many investors assume buybacks are taxed like normal share sales but that isn’t always true. Today's Ask Wallet Wise query decodes  how for buybacks completed before April 2026, the tax treatment can be very different .

The Ask Wallet-Wise initiative offers expert advice on personal finance and money-related queries. You can email your queries to askwalletwise@nw18.com, and we will try to get a top financial expert to address them.

My equity shares were bought back by the company in May 2025. I come under 30 percent bracket. How much capital gain tax I have to pay? My purchase price was 3 lakhs and got Rs. 15 lakhs for the buyback. Please explain in detail how much I need to pay.

Expert's Advice: Earlier the companies themselves were required to pay directly pay tax @ 20% of the buyback price. The amount received was treated as exempt income in the hands of the shareholder in respect of buyback. The law was amended later on making the amount received on buyback by the shareholder taxable as dividends in his hands. The dividend gets taxed at slab rate applicable to the resident shareholder. The law does not allow deduction for cost of the shares tendered and accepted for buyback against the amount treated as dividend.

The entire cost of the shares bought back by the company and extinguished is treated as short term capital loss or long term capital loss depending on the holding period of these shares. This capital loss can be set off against taxable capital gains as per the rules of set off of losses prescribed under the income tax laws. The short term capital loss can be set off against capital gains of all nature but long term capital loss can only be set off against other long term capital gains.

The buyback option is tax efficient for those whose normal income which gets taxed at slab rate including amounts of buyback treated as dividends does not exceed Rs 12 lakhs, the threshold for availing the rebate under Section 87A under the new tax regime, as you will get the rebate for full amount of tax payable on dividend. Your tax efficiency gets a boost under the new tax regime if you have some other capital gains taxable at special rates and which can be set off against the capital loss being the cost of the shares offered by you under the buyback.

In case shares offered for buyback are not held for more than 12 months and your aggregate taxable income whether taxable at slab rate or special rate does not exceed Rs 5 lakh, you can claim rebate under section 87A under the Old Tax Regime as you can claim rebate under section 87A against the tax liability in respect of short term capital gains in listed equity shares.

The provisions relating to buy back are likely to undergo basic change as per the proposed amendment proposed in the budget presented on 1st February.

As per the proposal the difference between cost and buyback price will be taxed as capital gains and taxed as short term capital gains or long term capital gains depending on the holding period. In order to ensure that promoters do not misuse the proposal the proposed law requires promoters to pay additional tax in addition to the regular capital gains tax payable.

After the budget proposal becomes law which will be effective from 1st April 2026 for the listed shares which become long term after one year, the retail investor will have to tax at 12.50 percent and @ 20 percent if holding period is less than 12 months. For buyback of unlisted companies the shareholder will have to pay capital gains tax @ 12.50 percent if the shares are held for 24 months or more else the profits are treated as short term capital gains and taxed at the slab rate applicable to the investors.

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