India, Feb. 2 -- The Union Budget 2026 focused on removing artificial distortions in the law and making tax administration and taxation easier for taxpayers. Yet it perpetuated the flawed treatment of buyback taxation in India. While the new regime offers relief to employees, it maintains a punitive status quo for the builders of the Indian startup ecosystem.

The Tax Conflict: Dividend Vs. Capital Gains

The previous buyback regime, introduced in 2024, treated all gains from buybacks as dividend income, with the corresponding acquisition cost being treated as a capital loss. This distorted the true nature of buybacks and imposed a compliance burden on shareholders.

A buyback is legally aCapital Gainsevent. It meets the definition in let...