Buyback Tax Demystified: A Simple Guide for Investors and Business Owners
Share buybacks have become a common corporate strategy across the world. Companies often use buybacks to return excess cash to shareholders, improve financial ratios, and signal confidence in their future. However, with the rise of buybacks, governments introduced a special levy called Buyback Tax to ensure fair taxation. Many investors hear this term but don’t fully understand what it means or how it affects them. This article explains buyback tax—what it is, why it exists, and what it means for companies and investors. What Is Buyback Tax? Buyback tax is a tax charged on companies when they repurchase their own shares from shareholders. Instead of distributing profits through dividends, a company may choose to buy back its shares from the market. This reduces the total number of shares outstanding and often increases earnings per share, which can support the share price. To prevent companies from using buybacks purely as a tax-saving method, governments impose buyback tax. In India,...