The government has rolled back its controversial buyback tax rules, under which the amount received through buybacks was treated as deemed dividend income in the hands of shareholders, without allowing any deduction for the cost of acquisition.
In her Budget speech, Finance Minister Nirmala Sitharaman proposed that these buyback proceeds be taxed as capital gains for all shareholders.
However, to prevent tax avoidance by large stakeholders, a new Promoter Buyback Tax has been introduced. Under the new rule, corporate promoters will be taxed at an effective rate of 25%, while non-corporate promoters will face a 33% rate.
Earlier, share buybacks were taxed primarily at the company level, leaving shareholders with uneven or unclear outcomes. After the 2024 change, buyback proceeds were taxed in the hands of shareholders, often at applicable slab rates, on the entire receipt without any deduction for the cost of acquisition.
According to Amit Maheshwari, Managing Partner at AKM Global, the Finance Minister's proposal is aimed at protecting minority shareholders by ensuring that tax applies only to the real gain. "This aligns buybacks with normal share sales for minority and retail investors while safeguarding revenue," Maheshwari said.
TCS on foreign travel education cut; other big announcements
In another people-friendly announcement, the Budget sharply reduced Tax Collected at Source (TCS) on overseas tour packages to a flat 2% from the earlier 5% and 20% slabs. This will significantly lower upfront costs for international travellers and is expected to stimulate outbound tourism.
Similarly, TCS on education and medical remittances under the Liberalised Remittance Scheme has been reduced from 5% to 2%, offering relief to families funding overseas education and critical medical needs and improving cash flows at a time when global costs remain elevated.
The government has also proposed extending the deadline for revising tax returns from December 31 to March 31 on payment of a nominal fee. Individuals filing ITR-1 and ITR-2 will continue to have a July 31 deadline, while non-audit business cases and trusts will be given time until August 31.
Meanwhile, contrary to expectations, the government has left the capital gains tax rates unchanged, even as it proposed to raise the Securities Transaction Tax (STT) on futures and options.
The Finance Minister said that, to provide a reasonable course correction in the Futures and Options (F&O) segment and generate additional revenue, STT on futures will be increased to 0.05% from 0.02%. STT on options premium and exercise will be raised to 0.15% from the present 0.1% and 0.125%, respectively.
Akhil Chandra, Partner and Global People Solutions Leader at Grant Thornton Bharat, said that from an individual taxpayer's perspective, Budget 2026 signals a shift from headline tax relief to meaningful reform in tax administration.
"While tax rates and slabs remain largely unchanged, the emphasis on simplified laws, extended return-filing timelines, rationalised penalties and reduced TCS on foreign remittances directly addresses long-standing pain points for salaried taxpayers, young professionals and globally mobile individuals. Measures such as automated lower-TDS certificates, easier disclosure mechanisms and reduced litigation costs reflect a move towards a trust-based system rather than an enforcement-heavy approach," Chandra said.
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