What is buyback tax?

Companies have two primary methods to reward shareholders: paying dividends and repurchasing shares. A tax on share buybacks is imposed on the net consideration paid for repurchasing shares, after deducting the net amount received when the shares were originally issued.

This buyback tax was first introduced for unlisted companies in 2013 when these companies frequently chose buybacks over dividends to distribute surplus funds and avoid taxes.

The government later extended the buyback tax to listed companies in July 2019.


The rate stands at 20 per cent (plus a 12 per cent surcharge and a 4 per cent health and education cess), totalling 23.30 per cent of the ‘distributed income’.

In 2020, the government abolished the dividend distribution tax, shifting the tax burden to the recipients of the dividends.