Income Tax Rule Changes from April 1st to Impact Share Buybacks

New Income Tax Rules 2026: A Shift in Share Buyback Treatment

With the start of the new financial year 2026-27, individuals are finalizing their financial plans, taking into account the changes in income tax rules from 1st April 2026. Investors in the stock market are advised to review their shareholdings and any buyback announcements made by their portfolio stocks in the current financial year.

Under the new income tax rules 2026, the income tax treatment for the buyback of shares has shifted from a dividend-based model to a capital gains model. Pankaj Mathpal, CEO & MD at Optima Money Managers, highlights the significance of this change, stating that for any share buybacks announced on or after 1st April 2026, the tax liability has shifted from a dividend-based model to capital gains. The difference between the buyback price and the cost of acquisition will be taxable as Short-Term Capital Gain (STCG) or Long-Term Capital Gain (LTCG), depending on the holding period.

The new income tax rule 2026 applies to non-promoter shareholders of the company. Jitendra Solanki, SEBI-registered tax and investment expert, emphasizes the change in income tax treatment for share buybacks, stating that before 1st April 2024, companies were required to pay 20% tax on the amount utilized for share buybacks, while the net proceeds received by shareholders were exempt under Section 10 of the Income Tax Act.

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However, for the period from 1 April 2024 to 31 March 2025, any money received by a shareholder from a company under a share buyback is treated as a deemed dividend, taxable at the individual's slab rate. Shareholders tendering their stock in the buyback offer receive the entire amount, which is taxable as dividend income in their hands, with no deduction allowed for the cost of acquiring the shares.

Income Tax Calculation Under the New Rule

The new income tax rule 2026 proposes a capital gains model for benefits received from share buybacks. Under this rule, STCG on LTCG will apply depending on the holding period.

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For listed shares, the one-year LTCG rule on share buybacks applies. For unlisted shares, the holding period for LTCG is 24 months, and the rate is 20% with indexation benefits. STCG on the share buyback is taxed as per the income tax slab applicable on your income, whereas the LTCG is flat 12.50% on gain exceeding ₹1.25 lakh in the financial year.