12% buyback surcharge in Finance Bill amendments, Nirmala Sitharaman clarifies

THe Lok Sabha on midweek passed the Finance banknote, 2026, on with amendments moved by unification finance government minister Nirmala Sitharaman to clarify the surcharge on share buybacks and improve the efficiency and procedural fairness of income tax administration.The amendments clarify that a flat 12% surcharge would apply on share buybacks. When the budget was presented on 1 February, the government proposed that the consideration received by a shareholder on buybacks, which had been treated as a dividend for tax purposes until now, would be treated as a capital gain and taxed accordingly at 30% for promoters or 22% for promoter companies.The applicable surcharge was initially unclear, especially for promoters and high-income taxpayers, and the amendment now caps the surcharge on buyback income at 12%, reducing their effective tax burden.However, experts noted that for small buybacks, the 12% flat rate could increase the tax burden, as the surcharge is levied based on income thresholds.Imposing a flat 12% surcharge on capital gains from buybacks for individual shareholders would significantly raise their effective tax cost, given that a lower surcharge structure applied—no surcharge on taxable income up to ₹50 lakh and 10% on taxable income between ₹50 lakh and ₹1 crore, explained Sandeepp Jhunjhunwala, M&A tax partner at Nangia Global Advisors.“The impact of this amendment, however, would largely be limited to small and mid-sized buybacks, as large buybacks where gains exceed ₹1 crore are already subject to a higher surcharge rate of 15%,” said Jhunjhunwala.Jhunjhunwala also said a clarification in the Finance Bill that electronically granted approvals in assessment, reassessment or re-computation proceedings cannot be invalidated due to inadequate reasoning, authentication defects, or absence of a digital signature, with retrospective effect from 1 April 2021, appears to be a curative and validation provision aimed at safeguarding the legality of electronically issued documents.It could nullify taxpayers’ positions in pending disputes and revive cases that might otherwise have been struck down due to procedural lapses, said Jhunjhunwala.The effort is to preserve income tax proceedings that are substantively compliant with the law but may have procedural or technical infirmities, he said.Sitharaman on Wednesday told parliamentarians that the new Income Tax Act, 2025, which takes effect from 1 April, will help reduce litigation as monetary limits for filing appeals at various fora have been raised.Amendment to Section 140 of the Act cleared by the Lok Sabha will raise the turnover limit in the startup tax holiday framework from ₹100 crore to ₹300 crore, fully in line with the updated startup policy notified by the Department for Promotion of Industry and Internal Trade (DPIIT) in February 2026, said Maheshwari of AKM Global.The DPIIT order revised the eligibility thresholds for India’s innovation ecosystem by increasing the turnover cap to ₹200 crore for regular startups and to ₹300 crore for deeptech startups.This alignment ensures that fast growing, innovation driven companies no longer lose tax benefits merely because they scale up rapidly.The bill also proposed to remove arrest provisions in cases of non-payment of tax dues by an assessee in default.