The recent overhaul of India’s share buyback tax rules has left investors and market participants rethinking their strategies. What once seemed like an easy arbitrage opportunity — tendering shares at a premium buyback price — may now result in lower post-tax returns than simply selling in the open market.
From 1 October 2024, shareholders are no longer exempt from tax on buyback proceeds. The entire amount received is now treated as dividend income, taxable at the investor’s marginal rate — often exceeding 30%. Meanwhile, only the cost of acquisition is treated as a capital loss, yielding limited relief.
In this blog, we break down how this shift transforms the economics of buybacks, why even a 20% premium may not be worth it, and whether this sweeping rule — aimed at curbing misuse by unlisted companies — unfairly burdens shareholders of listed firms.
