What should you consider before participating in share buyback?
Last Update Date: 05-10-2026
Published by freefincal
Abhishek Kumar's role: Wrote this article
Abhishek Kumar wrote this article on share buybacks, showing that shareholders in higher tax slabs may end up worse off by tendering, and that each investor now needs to compare the after-tax outcome.
What Abhishek Kumar said
How are share buyback proceeds taxed for shareholders since 1 October 2024?
The burden has moved from the company to the shareholder. Earlier the company paid a buyback distribution tax and the shareholder received the money tax-free under Section 10(34A). Now the company pays nothing, and the whole sum a shareholder receives counts as a deemed dividend, falling under income from other sources and taxed at that person's slab rate. For someone in the highest bracket that is 30 per cent plus surcharge and cess, which is a very different outcome from what buybacks used to offer.
Can I deduct what I originally paid for the shares against the buyback money?
No, and this is the part many people miss. Your purchase cost cannot be set against the buyback proceeds to reduce the dividend income. Instead, Section 46A turns it into a notional capital loss, usable only against capital gains you make later, never against the buyback income itself, and it may be carried forward for up to eight years. So you pay tax on the whole amount today while holding a loss you can use only later, against gains that are themselves taxed at a lower rate.
Should I tender my shares in a buyback or sell them in the market?
I would run the numbers for my own slab rather than tender by habit. For someone in a high bracket who has held the shares a long time, an open-market sale taxed as long-term capital gains at 12.5 per cent is usually far lighter than paying dividend tax at slab on the buyback, and the premium the buyback offers over the market price is often not enough to cover the gap. For someone in a low bracket the two routes can come out close, so tendering may make sense. Each offer now needs its own comparison.
In our words, from what he said in the piece. General information, not personal advice.
More of Abhishek's views on money management
This guest article explains how the tax treatment of share buybacks in India changed from 1 October 2024. Buyback proceeds are now taxed in shareholders' hands as deemed dividend at slab rates, while the cost of the shares becomes a capital loss. Worked examples compare tendering shares in a buyback with selling them on the market.
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What should you consider before participating in share buyback?