20% tax on buyback may put firms with high promoter shareholding in a fix

Under the current framework, the dividend distribution tax borne by the company is effectively taxed at the rate of 20.56 per cent

The 20 per cent tax on share buyback introduced in the Union Budget 2019-2020 is likely to put companies with high promoter shareholding in a dilemma. 

While the move will add to the tax burden for companies, buybacks will still be more tax-friendly compared to dividends for shareholders, particularly promoters. 

According to tax experts, the capital gains made by shareholders on tendering their shares in buybacks are not to be taxed. However, the total dividend income in excess of Rs 10 lakh in a financial year attracts 10 per cent tax at the hands of shareholders. Promoters and other large shareholders with