New Delhi, Oct. 21 -- Till 30 September 2024, a company buying back shares was liable to pay a 20% tax while its shareholders were exempt. From 1 October 2024, the tax laws have been amended, making any amount received by a shareholder for selling her shares back to the company taxable as dividend income. The cost of shares that are bought back is allowed as a capital loss to the shareholder.

These provisions are quite harsh. Firstly, the amount received is taxable as a dividend even if the buyback is not out of the company's profits. Secondly, the shareholder pays tax on the amount received at her marginal rate of tax (often 35% or more), whereas the capital loss due to the cost (assuming it is long-term) is set off only generally again...