Buy-backs are back! How India’s new tax rules change things for shareholders

India's revised share buyback taxation framework has brought capital gains treatment back into focus. Raj Ramachandran, Partner at JSA Advocates & Solicitors, examines the regulatory changes, their implications for shareholders and promoters, and why buybacks could regain their appeal as a corporate action.

Share buy-backs are an essential corporate action for companies that look to adapt to changing business requirements. They are generally considered by companies that have excess cash than required in the near future for their business operations. And while buy-backs have been a common corporate action, the regulatory environment over the past years did create some anxiety around them.

Buy-backs are initiated by private companies, public companies as well as public listed companies, depending on their then current state of affairs, and outlook for the future. In case of listed companies when stock prices are low and the company believes that the stock prices do not reflect their true value, it is considered an opportunity to increase the per share value by reducing the total number of issued shares pursuant to a buy-back. Such a buy-back action by the company conveys confidence of the company in the inherent value of its stock, thereby also consequentially helping with holding up the stock price.

For closely held private companies and........

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