The 12% flat surcharge under the new share buyback taxation regime introduced in this year’s Finance Bill will apply only to promoters, the Income Tax Department said in a social media post on Thursday.
This surcharge applies only to the ‘additional tax’ levied on the capital gain.
This additional tax increases the effective tax rate on the consideration received for the buyback to 30% for promoters and 22% for promoter companies.
“One of the amendments made through the Government’s amendments to the Finance Bill 2026 provides for a surcharge on additional income tax payable by promoters on capital gains arising from redemptions in accordance with section 68 of the Companies Act 2013. The surcharge has been provided at 12%. It is clarified that section 69 of the Income Tax Act 25 only provides for additional rates income taxes 25 on income.income tax for the petitioner in respect of capital gains on such redemption,” the ministry said.
“Therefore, the rate of 12% will be applicable only on the additional income tax paid by the promoters on the capital gains referred to in Section 69(2)(b) above. In the case of non-promoters, a mark-up will be applied to such capital gains as per normal provisions, if applicable,” the ministry said.
The new regime treats the consideration received from share buybacks as capital gains, replacing the earlier regime which treated it as a dividend.
The new regime is effective from April 1.
In her budget speech, Union Finance Minister Nirmala Sitharaman said the change was introduced to address misuse of the promoter buyback route.
“In the interest of minority shareholders, I propose to tax the buyback for all types of shareholders as capital gains. However, to prevent abuse of tax arbitrage, the promoters will pay an additional buyback tax. This will make the effective tax 22% for corporate promoters. The effective tax for non-corporate promoters will be 30%,” the minister said at the time.
