Stock market investors alert! FM changes this income tax rule in Budget 2024

New income tax rule on buyback of shares: While presenting the Union Budget 2024, Finance Minister Nirmala Sitharaman announced that the buyback of shares will be considered an income for the beneficiary shareholders. Nirmala Sitharaman also said that now shareholders will have to pay for the gains on the buyback of shares without indexation.

"For reasons of equity, I propose to tax income received on the buyback of shares in the hands of the recipient," Nirmala Sitharaman said in the parliament while presenting the Budget 2024 speech.

How will the buyback of shares be taxed now?

Speaking on the budget proposals regarding the buyback of shares, Pankaj Mathpal, MD & CEO at Optima Money Managers, said, "In the current income tax regime, beneficiary shareholders are exempted from paying any income tax on the income they incurred from the company's buyback offer. However, from FY25, FM Sitharaman has declared a new income tax rule: the beneficiary shareholder will have to pay on its income after availing of the buyback offer benefit."

On how the new income tax rule on the buyback of shares will be calculated, a Mumbai-based income tax expert said, "Now income coming from the buyback of shares will be taxed like the dividends. If a shareholder gets a buyback benefit, the net income from the company's offer will be added to one's net annual income and income tax will be levied as per the income tax slab applicable after adding the income from the buyback offer into one's net annual income."

Balwant Jain said that the new income tax rule for the buyback of shares will prevent the beneficiary from availing of the indexation benefit.

While announcing the rationalisation of capital gain tax, FM Nirmala Sitharaman also announced the doubling of the STT rate for the derivative segment, the Increase in the Long-Term Capital Gain (LTCG) Tax from 10 percent to 12.50 percent, and the Increase in the Short-Term Capital Gain (STCG) tax from 15 percent to 20 percent.

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