India Inc Executes ₹5,778 Crore in Buybacks Before New Tax Regime Kicks In

India Inc has executed buybacks worth ₹5,778 crore in a rush to beat the October 1, 2024 deadline, when the new tax regime on share buybacks came into effect. Out of the 31 buyback offers worth ₹7,097 crore announced this fiscal, 25 offers were completed post the Budget announcement.

In the 2024 Budget, Finance Minister Nirmala Sitharaman shifted the tax liability on share buybacks from companies to shareholders. Under the previous rules, companies were subject to a 20% tax on buybacks, while the proceeds were tax-free for shareholders. However, the new regime will tax shareholders at rates up to 39%, aligning buybacks with dividend taxation.

Key Highlights:

Rush to Complete Buybacks: Corporates moved quickly to complete buybacks before the new tax rules came into effect.

Notable Buybacks: Cera Sanitaryware offered shares at a 19% premium, Symphony offered a 59% premium, and Indian Toners & Developers offered a 23% premium.

Impact on Government Revenues: The new buyback tax is expected to be a windfall for the government, with experts noting that tax collections could rise to 39%, much higher than the long-term capital gains tax of 12.5% or the short-term capital gains tax of 20%.

Industry Outlook: Companies may now reconsider buybacks, focusing more on dividends or reinvesting in business.

Experts believe this tax shift may lead to fewer buybacks in the future and push companies to raise buyback prices to compensate shareholders for the new tax burden.

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