Finance Minister Nirmala Sitharaman on Sunday, February 1 announced that buyback proceeds will be taxes as capital gains for all categories of shareholders, and imposed an additional tax burden on promoters to curb misuse of the route.
Speaking during her Union Budget 2026 presentation, FM Sitharaman said the change was aimed at addressing the “improper use of the buyback route by promoters” and ensuring fair treatment for minority shareholders.
Under the new regime, corporate promoters will face an effective tax rate of 22 per cent, while non-corporate promoters will be taxed at 30 per cent on buyback transactions. The Finance Minister clarified that while buyback income will be uniformly taxed as capital gains, an additional buyback tax on promoters has been introduced to discourage tax arbitrage.
“In the interest of minority shareholders, I propose to tax buyback for all types of shareholders as capital gains. However, to disincentivise misuse of tax arbitrage, promoters will pay an additional buyback tax,” Sitharaman said in her Budget speech.
The move marks a departure from the earlier framework, where buybacks were subject to a separate distribution tax at the company level, often creating differing tax outcomes for promoters and public shareholders.
Alongside the buyback tax overhaul, the finance minister also announced a hike in Securities Transaction Tax (STT) on derivatives trading.
The STT on futures has been increased to 0.05 per cent from 0.02 per cent, while the STT on options has been raised to 0.15 per cent from 0.10 per cent. The move is likely to raise transaction costs for traders, particularly in the high-volume options segment and reduce liquidity in the equity derivatives market.
The proposals will take effect from the next financial year, subject to parliamentary approval.
