India, Feb. 2 -- The Income Tax department on Saturday clarified how the taxation of share buybacks has changed following announcements made in the Union Budget 2026, explaining that the revised framework will largely benefit small and retail shareholders.

The clarification came after finance minister Nirmala Sitharaman proposed shifting buyback taxation back to a capital gains framework, reversing the dividend-based taxation system that came into effect in October 2024.

According to the Central Board of Direct Taxes (CBDT), a "buy-back" means the purchase by a company of its own shares in accordance with the provisions of company law.

In simple terms, a buyback is when a company offers to purchase its own shares from shareholders and ...