Companies buy back shares for several reasons such as returning cash to shareholders, increasing earnings per share (EPS), signaling confidence, offsetting dilution.
Major Buybacks in 2025
Infosys - The largest and most notable buyback, worth ₹18,000 crore at ₹1,800 per share. This is one of the biggest buybacks in the Indian capital market.
History of Taxation on Buy Back Gains
Before October 1, 2024
Under the previous system, there was a significant tax arbitrage opportunity:
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Companies paid buyback tax under Section 115QA at an effective rate of 20% (plus surcharge and cess) on the “distributed income” (buyback price minus issue price
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The buyback proceeds were completely tax-free in the hands of shareholders as per the exemption under Section 10(34A)
Why This Was Problematic
After the Finance Act 2020 abolished Dividend Distribution Tax (DDT) and made dividends taxable in shareholders’ hands, buybacks still received preferential treatment with the exemption remaining in place.
From October 1, 2024
The Finance Act 2024 completely reversed the tax burden:
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Companies no longer pay buyback tax - Section 115QA din’t apply to buybacks after October 1, 2024
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The entire buyback amount is treated as “deemed dividend” in shareholders’ hands under Section 2(22)(f) and taxed at their applicable income tax slab rate
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The cost of acquisition shows up as a capital loss that can be carried forward for up to eight years and set off only against future capital gains
Impact on Investors
For high-income individuals in the 30% tax bracket, the effective tax rate could now go as high as 35.88% (including surcharge and cess) compared to the previous 23.296% paid by companies. This has made buybacks significantly less attractive, especially since the entire buyback amount is taxed, not just the gain, and the acquisition cost can only be used against future capital gains.
This is why buyback activity in India has dropped dramatically in 2025.
From April 1, 2026
Key Changes in Budget 2026
Change from “deemed dividend” to “capital gains”: Finance Minister Nirmala Sitharaman announced that buyback proceeds for all types of shareholders will now be taxed as capital gains instead of as deemed dividend.
This is a major reversal from the October 2024 changes where buybacks were taxed as “income from other source” at slab rates.
Special tax on promoters to prevent misuse: However, to address the tax arbitrage concerns, promoters will pay an additional buyback tax making the effective tax rate 22% for corporate promoters and 30% for non-corporate promoters
Why This Change Was Made
The Finance Minister explained the reasoning clearly:
“Change in taxation of buyback was brought in to address the improper use of buyback route by promoters. In the interest of minority shareholders, I propose to tax buyback for all types of shareholders as Capital Gains”
What This Means
For minority shareholders: Minority shareholders benefit significantly because capital gains treatment is much more favorable than the previous deemed dividend taxation at slab rates. They can claim the cost of acquisition as a deduction and potentially benefit from lower capital gains tax rates.
For promoters: The additional buyback tax prevents them from using buybacks as a tax arbitrage mechanism while still allowing legitimate use of the buyback route.
This is a balanced approach that protects minority shareholders while preventing promoters from misusing the buyback for tax avoidance. The change addresses the criticism that the October 2024 rules were too harsh on all shareholders, including retail investors who had no role in any potential tax avoidance schemes.