New income tax rule on share buybacks: Will a 12% surcharge hit your returns?

A new amendment in the Finance Bill, 2026 clarifies that a 12% surcharge will apply only to promoters on capital gains from share buybacks, effective April 1. Retail or individual investors are not affected, and their returns from buybacks will continue to be taxed as before.

What is a share buyback?

A buyback is when a company buys its own shares from shareholders, usually at a higher price than the market price.

Companies do this to return cash to shareholders, reduce the number of shares, distribute surplus funds, and improve financial ratios, among other things.

Share buyback new rule kicks in from April 1

A key amendment to the Finance Bill 2026, passed by the Lok Sabha, introduces a uniform 12% surcharge on capital gains from share buybacks, effective April 1.

What has changed now?

Earlier, surcharge on buyback gains varied by income:

• No surcharge up to ₹50 lakh

• 10% surcharge for ₹50 lakh–₹1 crore

• Higher rates above ₹1 crore

The new amendment introduces a flat 12% surcharge for promoters on the additional tax from buyback gains.

Who is affected?

According to the Income Tax Department, the 12% surcharge applies only to promoters, founders, key directors, or controlling shareholders. Regular investors or retail shareholders will not face any extra tax on buyback gains.

"The proposed 12% surcharge on buybacks is unlikely to impact individual shareholders, as it is primarily aimed at promoters. Retail investors will largely remain unaffected, ensuring their post-tax returns from buybacks stay stable. However, the change may influence how promoters approach capital distribution strategies going forward," said Abhishek Soni, CEO & Co-founder, Tax2win.

Finance Bill, 2026: Clarification on Amendment related to 12% surcharge for promoters in buybacks

Promoters pay an extra 12% surcharge on buyback capital gains. Everyone else is taxed normally.

1. 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.

2. The surcharge has been provided at the rate of 12%.

3. 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.

4. Therefore, the rate of 12% will apply only on additional income-tax to be paid by the promoters on aforesaid capital gains mentioned in section 69(2)(b).

5. In the case of non-promoters, surcharge as per normal provisions will apply, if applicable on such capital gains.