How taxation skews share buyback by a company over dividend payout

Hiren Bhatt, partner–deal advisory, M&A tax and private equity tax, KPMG in India, explains the differences in tax treatment of share buyback and dividend payout

Is the tax treatment of share buyback by a company different from dividend payout?

The Income-tax Act, 1961 (the Act), provides for different tax treatment both for share buyback and dividend payout. While dividend has been subject to dividend distribution tax, to be paid by the company, taxation of buyback would depend upon whether it is a buyback of listed shares or unlisted shares. Also, both dividend and buyback would have different tax treatment in