Buyback tax on shareholders

New Delhi: Finance Minister Nirmala Sitharaman on Tuesday said buyback of shares will be taxed in the hands of shareholders similar to dividend from October 1, a move that will increase the tax burden on investors. Further, the cost paid by the shareholder to acquire these shares will be considered for computation of capital gains or loss to them.

“For reasons of equity, I propose to tax income received on buyback of shares in the hands of the recipient,” Sitharaman said in her Budget speech. It has been proposed that the income from buyback of shares by companies be chargeable in the hands of the recipient investor as dividend, instead of the current regime of additional income-tax in the hands of the company. Further, the cost of such shares will be treated as capital loss to the investor, she added. Experts said the government move can increase the burden on investors, besides, there might be a decline in the number of buybacks.

“The taxation of buyback as dividends may potentially increase tax burden on investors. Hitherto, it is taxed at 20 per cent but after the amendment, the taxpayers in higher tax bracket will have to shell out more tax,” Amit Maheshwari, Tax Partner, AKM Global, a tax and consulting firm, said.