A slew of share buyback offers are opened for investors by listed companies in which they tender their held shares to reap profits. Generally through a buyback offer, the company distributes its surplus cash to investors.
So, here is the tax implication on gains realized in a share buyback offer for a shareholder:
Tax implication on share buyback gains for a resident-shareholder
The tax liability for an investor depends on the fact whether the shares tendered in a buyback offer are of a listed or unlisted company.
In case of a listed company
For the shareholder, irrespective of the residential status, the gains qualify for capital gains tax implications except in the case when buyback tax is paid by the company as per Section 10(34A).
- If shares are held for over 1 year
The buyback of listed securities held for over a year with profits made on it is treated as long term capital gains and the same is exempted from tax liability in accordance with Section 10(38) of the Act if shares are bought back before March 31, 2017.
In the other instance, when the buyback of shares is executed after the cut-off date specified above LTCG tax is levied.
-If shares are held for less than 1 year
The gains realized from share buyback if shares are held for less than a year are treated as STCG and the same would be taxed @ 16.22% including surcharge and cess.
In case shares are held as stock-in trade
So, after a buyback of such shares accrues gains for the investor, the same is taxed as business income.