Capital gains from share buybacks to see flat 12% surcharge from April 1: Finance Bill amendment

A flat 12 per cent surcharge will be levied on capital gains made by individual or corporate shareholders by selling shares in buyback offers of companies from April 1, according to amendments to the Finance Bill approved by the Lok Sabha on Wednesday.

The government on Wednesday introduced 32 amendments in the Finance Bill 2026, which was later approved by the House. The amended Finance Bill will be taken up for consideration in the Rajya Sabha on Friday.

Commenting on the reforms, Sandeep Jhunjhunwala, M&A Tax Partner, Nangia Global Advisors, said that the imposition of a flat 12 per cent surcharge on capital gains from buybacks for individual shareholders will significantly increase their effective tax cost, as a lower surcharge structure was implemented earlier.

Currently, Rs. No surcharge is levied on taxable income up to Rs.50 lakh, while Rs. 50 lakhs and Rs. A 10 per cent surcharge is levied on capital gains on buyback on taxable income between Rs 1 crore.

“The move to a flat 12 per cent surcharge means higher tax outgo in this bracket, making buybacks a costlier route for cash extraction compared to alternatives like dividends. This will discourage individual shareholders’ inclination for buybacks and distort capital allocation decisions,” Jhunjhunwala said.

He said the impact of the amendment would, however, be largely limited to small and medium-sized buybacks.

A large buyback, where the profit is Rs. 1 crore, is already subject to a higher surcharge rate of 15 per cent, Jhunjhunwala said, adding, “The amendment actually implies a 3 per cent reduction in the surcharge for such a category”.

For corporate shareholders, a flat 12 per cent surcharge on buyback may be imposed in situations where the taxable income exceeds Rs. 1 crore, where no surcharge was applied earlier.

Where taxable income is Rs. 1 crore to Rs. 10 crores, a surcharge of 7 percent is applicable.

“In both cases, the shift to a uniform 12 percent surcharge increases the overall tax burden, making buybacks relatively more expensive,” Jhunjhunwala said.

The amendments contained in the Finance Bill also include a retroactive amendment in circumstances in which approvals will not be treated as invalid by the Income Tax authorities.

Explaining the amendment, Jhunjhunwala said that the amendment clarifies that electronic assessment, revaluation or recount proceedings cannot be invalidated with retrospective effect from April 12, 2011, due to insufficient reasoning, authentication defects or absence of digital signature.

This appears to be a remedial and validation provision aimed at protecting the legitimacy of documents previously issued electronically, he said.

“It can nullify the position of taxpayers in pending disputes and revive cases that might otherwise be bogged down by procedural lapses,” Jhunjhunwala said.

This amendment follows an earlier proposal in the Finance Bill 2026 relating to DIN, which was proposed to come into effect retrospectively from October 1, 2019, aimed at preventing assessments from being voided simply because of an error in quoting the DIN.

“The amendments reflect a policy shift towards prioritizing the substance over form principle, ensuring that proceedings are not invalidated merely because of defects such as authentication issues or absence of digital signatures,” Jhunjhunwala said.