End of Buy back shares?

Recently, you bought shares of a company for Rs.100. The company is ready to buy it for Rs.120. A random person in the market is ready to buy for Rs.106. Whom do you want to sell to maximize your returns?

You would be more profitable, if you sell for Rs.106 to a random person than selling for Rs.120 to the company. 

Starting with this financial year, the returns in the buy back shares are taxed in the hands of the recipient as Dividend. 

If you are selling the share to the company for Rs.120, and if you are in the highest tax bracket, then you have to pay a tax of Rs.36+Cess. 

Of course, you can claim a capital loss of Rs.100 for the purchase price, which can be offset with other capital gains that you may have. [It cannot be offset with your Salary, Savings/FD interest or any other income other than capital gains.]

Let's assume, you have a short term capital gain somewhere else and you are offsetting that loss with that. The tax benefit that you get by that is Rs.20 [20% is the short term capital gains from 2024-25 FY].

The net tax that you would be paying is Rs.36-Rs.20=Rs.16.

For the profit of Rs.20, you would be paying tax of Rs.16 [In case of short term capital gains].

Let's say, you bought this share more than a year back, and you want to offset with the long term capital gains. The tax benefit that you get from the capital loss is Rs.12.5 [Assuming, your long term capital gains is more than Rs.1.25 Lakh + purchase price of these shares].

The net tax that you would be paying is Rs.36-Rs.12.5 = Rs.23.5

For the profit of Rs.20, you would be paying tax of Rs.23.5

Hats off to Nirmal Sitharaman for bringing such a simplified tax system.