Your stock buybacks will now be taxed as capital gains
What's the story
In a major policy shift, Finance Minister Nirmala Sitharaman has proposed taxing the proceeds of stock buybacks as capital gains instead of dividend income. The move, announced during her Union Budget speech today, is aimed at addressing a complex tax rule that has been widely criticized for its punitive impact on promoters and shareholders. Non-corporate promoters shall now pay a special capital-gains tax rate of 30% on share buybacks.
Tax rates
Corporate promoters to pay 22% effective tax rate
Corporate promoters will now be liable to pay a 22% effective tax rate on share buybacks. Ankit Agarwal, Managing Director of Alankit Limited, said this move is an attempt to curb tax arbitrage and ensure fairness in the system. He added that it would promote more transparent and disciplined capital allocation practices among companies.
Tax reform
Step toward simplifying tax framework
The new tax regime will treat the entire consideration received on buybacks as capital gains, not dividends. This change is aimed at addressing previous inconsistencies where dividends were taxed at the taxpayer's slab rate while capital gains were offset against other capital gains. Rajarshi Dasgupta, Executive Director of Tax at AQUILAW, welcomed this move as a step toward simplifying the tax framework and providing greater clarity for companies and investors planning buybacks.
Expert opinions
Welcome move, but STT hike raises impact costs concern
Amit Gupta, Partner at Saraf and Partners, welcomed the return of buyback taxation as capital gain. He said this change is a welcome move that would pacify taxpayer concerns around buyback route taxation. However, Shripal Shah, MD & CEO of Kotak Securities, warned that the steep jump in STT on futures could raise impact costs for traders and hedgers.