Starting from 1st October 2024, taxation rules for share buybacks have undergone a significant change. The buyback amount received will now be treated as dividend income and taxed under the head “Income from Other Sources”.

Suppose an investor purchases 130 shares of Infosys at ₹1,500 each and tenders all shares in a buyback at ₹1,800.

• If the company accepts 50 shares, then 50 × 1,800 = ₹90,000.
• TDS of 10% will be deducted on this amount. Hence, the investor receives ₹81,000 in the bank.

The total buyback value of ₹90,000 will be treated as dividend income and taxed as per the individual’s applicable slab rate (which can go up to 30% + surcharge).

The cost of purchase of those 50 shares (50 × ₹1,500 = ₹75,000) will be treated as a capital loss. This loss:

• Can be set off against short-term or long-term capital gains in the same financial year.
• If not adjusted, it can be carried forward for up to 8 assessment years.

Participants who earlier relied on selling shares in the grey market for buybacks are strongly advised to avoid such practices under the new taxation framework.

Written by Indian-Share-Tips.com – providing clear insights on taxation, investments, and stock market strategies to help investors make informed decisions.