Starting from October 1, 2024, a significant change will impact how shareholders are taxed on money received from share buybacks. Under the new regulations, this amount will be taxed similarly to dividends, meaning it will be considered part of the shareholder’s total income and taxed according to their applicable income tax slab.
Example: If a shareholder receives Rs. 1,50,000 from a buyback and falls under the 30% tax slab, they will be liable to pay Rs. 45,000 in taxes, just as they would for dividend income.
Previously, share buybacks were taxed differently. When a company repurchased its shares, it was responsible for paying a special tax before distributing money to shareholders. As a result, shareholders received the buyback amount without any additional tax burden. The new system shifts this tax liability from the company to the shareholders, aligning it with the treatment of dividends since 2020.
Yes, the new approach aligns with how dividends have been taxed since 2020. Under the current system, dividends are taxed according to the shareholder's income tax slab, and this same methodology will now apply to buybacks. Both forms of income will be treated equivalently for tax purposes.
Under the new rule, shareholders cannot deduct the original cost of shares when calculating the tax owed. The entire amount received from the buyback will be taxed as income.
Example: If a shareholder bought shares for Rs. 40,000 and sold them in a buyback for Rs. 1,00,000, they cannot claim the Rs. 40,000 as an expense. The full Rs. 1,00,000 will be subject to taxation.
As of now, there are no exceptions to this new tax treatment for buybacks occurring on or after October 1, 2024. This rule aims to create a straightforward and equitable taxation system for all shareholders.
“A strong economy is built when tax laws are fair, simple, and predictable for every citizen.”
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