How the tax rule of 2024 changed to ruin repurchase for shareholders

Copyright © HT Digital Streams Limit all rights reserved. Shipra Singh 4 min Read 30 Jul 2025, 12:30 pm ist this change places effectively repurchase on the same foot as dividends for tax purposes. Summary The trade union budget offered in July 2024 shifted the tax responsibility of the company to the shareholder. New -delhi: Until October 2024, companies paid a repurchase tax at an effective rate of 23.3%, including surcharge and strike. Shareholders received the return returns tax -free. The trade union budget offered in July 2024 has shifted the tax responsibility of the company to the shareholder. The total amount, and not just the profit, received by shareholders from a repurchase, is treated as revenue and taxed against the plate rates as ‘income from other sources’ (IFOS). This change places effectively repurchase on the same foot as dividends for tax purposes. How it does investors damage that taxes the repurchase of shareholders may seem more transparent. However, this tax method has a significant disadvantage for investors residents because of how the shares of acquisition (COA) are being treated under the new system. The acquisition costs of shares are part of the total payout amount taxed as a dividend. Since the COA is not allowed as a deduction, it is considered a capital loss that can be continued against other capital gains or continues. This creates a difficult situation: the shareholder pays tax at 15%, 20%or 30%on full repurchase returns, including their original investment, while the tax saved by compensating it against other capital gains is 12.5%. Let us understand with an example. Mr X is a multinational company manager in the 30% tax plate. He bought shares worth £ 2 lakh from the company ABC. ABC bought the shares after three years at £ 3 Lakh. Mr. X made £ 1 lakh profit, but he has to pay 30% tax on the total £ 3 lakh, which is £ 90,000. Says, Mr. X earns £ 3.25 Lakh long-term capital gains on the same year on stocks. He can compensate the £ 2 lakh capital loss (the COA of ABC shares) with the taxable gains of £ 2 lakh against mutual funds (£ 1.25 lakh is exempt from tax). He saves £ 25,000 (12.5% *200,000) by compensating capital loss, but paid £ 60,000 on it. In fact, Mr. X tax paid on its investing capital. In addition, any relief in the form of a capital loss deduction is only useful at profits that may occur in the future or not. Thus, all taxpayers in higher tax pages will face a tax loss if they do not have sufficient capital gains to compensate the capital loss against the repurchase of shares. The unused losses can be transferred to eight years, after which they become a dead loss. Why unnamed tax experts believe that many individuals with high net worth and large promoters under the old rules have utilized the tax rules by receiving the profits mainly as repurchase, as the tax liability fell on the company. “Companies are at a lower rate of 23.30% on this repurchase, while the same profits are distributed as dividends, shareholders – especially in higher tax heets – would have faced a 30% plus additional surcharge and a tax advantage for shareholders,” said Ashish Karundia, the founder of the Chartered Accounted Firm of Ashthish Karundia & Tax authorities to the traditional tax approach, where the tax is now charged directly to the shareholders instead of the company. ‘In response to the inquiry of a currency on the purchase cost, the Central Council of Direct Tax (CBDT) explained that a new clause (in section 2 (22) (f) of the Income Tax Act) was inserted to the definition of’ dividend ‘to include any payment on the purchase of its own shares on the same tax, 2013. These dividend income is taxed under the main IFOS and according to the structure of the Act (Income Tax Act), no deduction for the acquisition costs is permissible because such costs are not permissible against dividend income. “… Since the shareholder’s shares are extinguished during the repurchase, it forms a ‘transfer’ as defined under Article 2 {47} (ii). Also according to section 46A sales consideration is considered a capital loss, while the income in the nature of the dividend in the appropriate rate, the capital loss is available for the revenue/loss in the nature of the nature. have for the treatment/it is available for the income/loss in the nature of the nature of nature, “the treatment available for the treatment of income/loss in the income/loss in the nature of the profit,” the treatment available for the treatment of the income/income/loss in the income in the nature of the nature of nature gain, “the treatment receives the treatment available for the income/loss in the nature of the nature of the nature of the nature of the nature. Silver lining for foreign investors interestingly enough, this proposal may work in favor of foreign shareholders. Under the former system, as the company paid the buyback tax, foreign investors could not claim foreign tax credits (FTC) in their homelands. The new rules will drop the tax directly on the shareholder, which may allow them to claim credit under dual tax avoidance agreements (DTas). Many such treaties offer preferential tax rates on dividend -like income, which can lead to a lower effective tax rate for these investors. Catch all the business news, market news, news reports and latest news updates on Live Mint. Download the Mint News app to get daily market updates. More Topics #Tax #Taxes #Share Repurchase #Divividends Read Next Story