Union Budget 2026–27: Buyback Proceeds To Be Taxed As Capital Gains, Promoters Face Additional Levy

Under the new proposal, proceeds received by all categories of shareholders, including retail investors, institutional investors, and foreign shareholders from share buybacks will be taxed as capital gains, instead of being subject to a separate buyback distribution tax at the company level. This marks a departure from the earlier regime, where companies had to bear the tax burden and shareholders largely received tax-exempt income.

However, the Union Budget makes a distinction in the case of promoters. While promoters will also be taxed under the capital gains regime, they will be required to pay an additional buyback tax, creating a differentiated treatment between promoter shareholders and non-promoter shareholders.

This provision appears aimed at preventing tax arbitrage and discouraging the use of buybacks as a tool for promoters to extract surplus cash at a lower effective tax rate.