New Delhi, July 30 -- Until October 2024, companies paid a buyback tax at an effective rate of 23.3%, including surcharge and cess. Shareholders received the buyback proceeds tax-free.

The Union budget presented in July 2024 shifted the taxation responsibility from the company to the shareholder. The entire amount, and not just the profit, received by shareholders from a buyback is treated as income and taxed at slab rates as "income from other sources" (IFOS). This change effectively puts buybacks on the same footing as dividends for tax purposes.

How it hurts investors

Taxing buybacks in the hands of shareholders may seem more transparent. However, this method of taxation has a significant drawback for resident investors due to how t...