Flat 12% share buyback surcharge only on promoters: IT department

The 12% flat surcharge under the new share buyback taxation regime introduced in this year’s Finance Bill will apply only in the case of promoters, the Income Tax Department said on Thursday in a social media post.

This surcharge applies only to an "additional tax" levied on the capital gain.

This additional tax increases the effective tax rate on the consideration received for a buyback to 30% for promoters and 22% for promoter companies.

“One of the amendments carried out through government amendments to the Finance Bill, 2026, provides for a surcharge on additional income-tax payable by promoters on capital gains arising from buyback, in accordance with section 68 of the Companies Act, 2013. The surcharge has been provided at the rate of 12%. It is clarified that section 69 of the Income-Tax Act, 2025, provides for tax rates only in respect of additional income tax on promoters in respect of capital gains on such buyback,” the department said.

“Therefore, the rate of 12% will apply only on additional income tax to be paid by the promoters on the aforesaid capital gains mentioned in section 69(2)(b). In the case of non-promoters, surcharge as per normal provisions will apply, if applicable on such capital gains,” the department said.

The new regime treats consideration received from share buybacks as capital gains, replacing the earlier regime that treated it as a dividend.

The new regime is effective from 1 April.

In her budget speech, Union finance minister Nirmala Sitharaman had said the change was brought in to address the improper use of the buyback route by promoters.

“In the interest of minority shareholders, I propose to tax buyback for all types of shareholders as capital gains. However, to disincentivize misuse of tax arbitrage, promoters will pay an additional buyback tax. This will make the effective tax 22% for corporate promoters. For non-corporate promoters, the effective tax will be 30%,” the minister said then.