How your capital gains will be taxed after Budget 2026

Lottert and capital gain

• Buyback proceeds for all shareholders to be taxed as capital gains
• Promoters face higher buyback tax: 22% for corporates, 30% for non-corporates.
• SGBs bought from secondary market lose capital gains exemption at maturity

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Finance Minister Nirmala Sitharaman on February 1 presented Union Budget 2026. During her Budget speech she announced that buyback proceeds for all shareholders will be treated as capital gains.

" I propose to tax buyback for all types of shareholders as Capital Gains. However, to disincentivize misuse of tax arbitrage, promoters will pay an additional buyback tax. This will make effective tax 22 percent for corporate promoters. For non corporate promoters the effective tax will be 30 percent," FM said.

“The Union Budget 2026 signals a decisive shift in the taxation of share buybacks by moving towards a more uniform and principle-based tax treatment aligned with capital gains. By reducing the scope for tax arbitrage between dividends and buybacks, the proposal addresses long-standing concerns around unequal outcomes across shareholder classes," said Aditya Bhattacharya, Partner, King Stubb & Kasiva, Advocates and Attorneys.

"From a legal and tax perspective, this change is likely to prompt companies to revisit buyback structures and capital distribution strategies, as the relative tax efficiency that once drove buybacks is significantly diluted,” Bhattacharya said.

No capital gains exemption on Sovereign Gold Bonds bought from secondary market

The tax-free maturity benefit on SGBs will now be available only for bonds purchased directly from the RBI at the time of original issuance and held until maturity. SGBs bought from the secondary market will not qualify for capital gains exemption.

All secondary market investors will now be taxed on their gains as capital gains. Long Term Capital Gain to be taxed at 12.50 percent and Short Term at Slab rate.

How different capital gains are taxed?

Under the current income-tax framework, individuals are required to pay tax on capital gains arising from the transfer of capital assets such as equities, mutual funds, bonds and immovable property. The tax treatment varies based on the holding period and the nature of the asset, with gains classified as either short-term or long-term. Listed equities and equity-oriented mutual funds are taxed differently from debt instruments and real estate, with prescribed rates and exemptions already built into the system.

By taxing share buybacks like capital gains and limiting tax-free benefits on Sovereign Gold Bonds, the government wants to reduce tax-driven loopholes. Investors and companies will now have to plan their investments and payouts more carefully, focusing on long-term value rather than tax savings.