The buyback of shares FY 2026-27 has been a rollercoaster in India. After the controversial “Deemed Dividend” (2024-2026), Budget 2026 has fundamentally introduced the capital gains framework for Financial Year 2026-27.

Buyback of shares has traditionally been a tax-efficient method for companies to return surplus funds to shareholders. However, with the coming into force of the Income Tax Act, 2025, w.e.f. 1 April 2026, the taxation framework for buybacks has undergone a significant shift.

The earlier regime taxed buybacks at the company level. The new law moves taxation to the shareholder level, introduces capital gains treatment, and imposes an additional tax burden on promoters.

In this write-up, we strive to provide a clear explanation of the new provisions under Section 69, along with a comparative analysis of the old and new regimes.

Section 69 – Capital Gains on Buyback

Where a shareholder receives consideration from a company for the purchase of its own shares, the difference between the cost of acquisition and the consideration received shall be deemed to be capital gains in the year of buyback.

• Buyback is treated as a transfer of shares
• Tax is levied under the head Capital Gains
• Cost of acquisition is allowed as deduction

Additional Tax for Promoters (Section 69(2))

A significant feature of the new regime is the additional income tax applicable to promoters.

In addition to normal capital gains tax, promoters are also required to pay:

For Short-Term Capital Gains (STCG)

• 2% (where promoter is a domestic company)
• 10% (where promoter is other than domestic company)

For Long-Term Capital Gains (LTCG)

• 9.5% (domestic company promoter)
• 17.5% (other promoters)

Old vs New Tax Regime (Comparative Analysis)

🔴 Earlier Regime (Income-tax Act, 1961 – Section 115QA)

• Tax was payable by the company
• Rate: ~20% + surcharge + cess (~23.296%)
• Shareholder income was exempt under Section 10(34A)
• No capital gains implications

🟢 New Regime (Income-tax Act, 2025 – Section 69)

• Tax is payable by the shareholder
• Tax treatment: Capital Gains
• Cost of acquisition allowed
• Additional tax on promoters

Practical Impact of the New Regime

For Retail Investors

• Tax only on actual gains
• Benefit of cost deduction
• No additional surcharge

👉 Overall, more rational and equitable

For Promoters

• Additional tax increases effective tax rate
• Reduced arbitrage between dividend vs buyback
• Requires careful tax planning

For Companies

• No liability to pay buyback tax
• Simplifies corporate-level taxation
• Shifts compliance burden to shareholders

Strategic Considerations

Before undertaking a buyback under the new regime:

• Compare tax impact with dividend distribution
• Evaluate shareholding pattern (promoters vs public)
• Consider holding period (STCG vs LTCG impact)
• Assess additional promoter tax implications

Compliance Requirements (Companies Act, 2013)

Buyback continues to be governed by Section 68 of the Companies Act, 2013, which requires:

• Board / Special Resolution
• Maximum limit: 25% of paid-up capital and free reserves
• Debt-equity ratio ≤ 2:1
• Filing of forms SH-8, SH-9, SH-11
• Extinguishment of shares within prescribed time

Conclusion

The introduction of Section 69 under the Income Tax Act, 2025, marks a fundamental shift in the taxation of buybacks in India.

The move from company-level taxation to shareholder-level capital gains taxation, along with the additional tax on promoters, aims to create a more balanced and anti-arbitrage framework.

While the new regime benefits retail investors by taxing only real gains, it increases the tax burden on promoters and introduces greater complexity in planning.

Companies and professionals must carefully evaluate the tax implications, shareholding structure, and strategic objectives before opting for a buyback in FY 2026–27.

FAQs

Q1. What is the tax treatment of a buyback in FY 2026-27?
A buyback is taxed as capital gains in the hands of shareholders under Section 69 of the Income Tax Act, 2025.

Q2. Who pays tax on buyback now?
The shareholder is liable to pay tax instead of the company.

Q3. Is there additional tax for promoters in a buyback?
Yes, promoters are subject to additional income tax over and above capital gains tax.

Q4. Is a buyback better than a dividend under the new law?
It depends on shareholder profile, promoter holding, and tax implications.

👉 Contact our team today for a consultation and ensure your buyback is tax-efficient and compliant.

“Have questions on buyback taxation? Drop them in the comments below.”