Understanding the Tax on Buy Back of Shares After Budget 2025

The Budget 2025 has brought forth an amendment to the tax on buy back of shares. The tax liability has been shifted from the company buying back shares to the shareholders. The present tax on buy back of shares is 35.88%. If your holdings are on the verge of buy back, learn what a share buy back, what happens due to a share buy back and the present tax on buy back of shares here. 

Quick Overview 

• Before Budget 2025, companies buying back shares had to pay taxes at the rate of 23.3%.
• Shareholders now need to pay tax at the rate of 35.88% on share buy backs.
• Proceeds from buy back of shares are treated as dividend income for shareholders. 

What is Buyback of Shares in Income Tax?

Buyback of shares refers to the repurchase of shares by companies from shareholders. Usually, companies buy back shares at a higher price compared to the market price. As a result, the total number of outstanding shares in the market decreases while the value of remaining shares increases.

Why Do Companies Buyback Shares?

Companies buy back shares to increase earnings per share (EPS) by reducing the total number of outstanding shares. This can affect the price of stocks. The other reasons for which companies buyback shares are as follows:

• Companies might buy back shares when they feel their shares are undervalued, to boost the confidence of the investors.
• If a company wants to reward their shareholders with cash instead of dividends, it might buy back the shares.

Income Tax Provisions on Buyback of Shares

Under Section 115QA of the Income Tax Act, buy back of shares is taxable. Earlier companies had to pay 23.3% tax, inclusive of cess and surcharge. However, Budget 2025 shifted the tax burden to the shareholders.

High net worth individuals will face a tax liability of 35.88% on buy back of shares after Budget 2025.

Budget 2025 Update for Tax on Buyback of Shares

The Budget 2025 has revised taxation on buy back of shares by eliminating the previous regime of Section 115QA. It has mandated that taxation will be in the hands of the shareholder as dividend income and not the company.

This amendment ensures taxation parity on the amount received by shareholders as dividends and from buy back of shares.

Key Changes in ITR for AY 2025-26

The key changes introduced in the Income Tax Return for the assessment year 2025-26 include mentioning the details of share buy back by the respective company. The company has to mention the following details in the ITR:

• Total number of shares bought back
• Aggregate amount paid by the company for the buy back of shares
• Tax liability under Section 115QA

Tax Rate Under Section 115QA

The tax on buyback of listed shares is 35.88% and the tax burden is borne by the shareholders. Earlier, the company buying back the shares used to bear a tax burden of 23.3%.

Final Word

Since the 2025 Budget amendment, tax on buy back of shares is now a fixed 35.88% and is borne by shareholders. If you are a shareholder, any proceeds you receive from a buy-back are treated as dividend income. This change was introduced to ensure tax parity between companies and shareholders.