If you tender your shares in a company buyback before 1 April 2026, the entire amount you receive is treated as dividend income in your hands and taxed at your personal income-tax slab rate rather than as a capital gain. This means there’s no deduction for the cost of acquiring the shares against the buyback payout, and you pay tax on the full amount received.

This rule stems from changes made in recent years: Initially companies paid a buyback tax on the profit portion, but from October 2024, the onus shifted to shareholders — and the payout is treated as “income from other sources.” Under this regime, the purchase cost becomes a capital loss which can be set off against eligible capital gains but not against the buyback income itself.

For some investors this can increase their tax burden significantly compared with selling shares on the open market, where capital gains are taxed at preferential rates: long-term gains (held > 12 months) at about 12.5 % and short-term gains at 20 % plus surcharge and cess.

Why this matters now: The Budget 2026 proposes to overhaul this approach from 1 April 2026, taxing buybacks as capital gains based on holding period instead — a move that should reduce tax for many investors and align buybacks with normal sale taxes.