Buybacks, Bonuses, Splits and Dividends: How They Are Taxed in 2026
Last updated: 13 October 2026
Quick answer: For buybacks on or after 1 April 2026, buyback tax in India is back to capital gains: you pay tax only on the buyback price minus your cost, at 20% or 12.5%. Dividends are taxed at your slab rate, with 10% TDS above ₹10,000 a year. Bonus shares have zero cost; a split spreads your original cost. Under T+1, buy before the ex-date, which equals the record date.
Last updated: 13 October 2026 Quick answer: For buybacks on or after 1 April 2026, buyback tax in India is back to capital gains: you pay tax only on the buyback price minus your cost, at 20% or 12.5%. Dividends are taxed at your slab rate, with 10% TDS above ₹10,000 a year. Bonus shares have zero cost; a split spreads your original cost. Under T+1, buy before the ex-date, which equals the record date. Key takeaways Buyback: capital gains on the profit from 1 April 2026; promoters pay a higher effective rate. Dividend: slab-rate income; TDS 10% above ₹10,000 per company per year. Bonus: new shares cost nil; their holding period starts on allotment. Split: no tax; cost and holding period carry over to the new shares. Record date: same as ex-date under T+1; buy at least a day earlier. When a company you own announces a buyback at a 30% premium, it feels like free money. For eighteen months until March 2026, it often was not: the whole payout was taxed as dividend at your slab rate. The rules changed again on 1 April 2026, and the change is good news for most shareholders. This guide explains the four most common corporate actions (buybacks, bonus issues, stock splits and dividends), the record date and ex-date mechanics, and how each is taxed for resident individuals as of October 2026 under the Income-tax Act, 2025. Every example is worked in rupees. What is a corporate action? A corporate action is an event, decided by a company's board and often shareholders, that changes what shareholders hold or receive. Some return cash (dividends, buybacks). Others change the number of shares without changing their total value (bonus issues, splits). Rights issues, mergers and demergers are also corporate actions, but this guide focuses on the four that individual investors meet most often. Record date vs ex-date: when must you own the share? The record date is the date on which the company checks its register of members to decide who gets the benefit. The ex-date is the first day the share trades without that benefit. Since India moved to T+1 settlement in 2023, a share bought today reaches your demat account the next working day. So the ex-date and record date are now the same day. To qualify, you must buy at least one trading day before the record date . Buying on the record date itself is too late. Timeline of record date and ex-date for dividends, bonus shares and splits in India On the ex-date, the share price usually opens lower by roughly the value of the benefit. A ₹20 dividend on a ₹1,000 share tends to take about ₹20 off the price. This is why buying just before a dividend is not free money, especially once tax is counted. How are dividends taxed in India in 2026? Since 1 April 2020, dividends are taxed in the shareholder's hands at the normal slab rate. There is no special rate and no exemption, unlike the ₹1.25 lakh exemption for long-term capital gains. TDS: companies deduct 10% TDS on dividends to a resident individual above ₹10,000 per company per financial year, under section 393(1) of the Income-tax Act, 2025 (old section 194). It is 20% if PAN is not available. Avoiding TDS: if your total income is below the taxable limit, you can submit Form 121 (which replaced Forms 15G and 15H) to the company's registrar. Expenses: the only deduction allowed is interest on money borrowed to buy the shares, capped at 20% of the dividend. Demat and advisory fees are not deductible. Advance tax: dividend is counted for advance tax only from the quarter in which it is declared, so there is no interest for earlier instalments. Worked example: a ₹20,000 dividend Priya, a Pune IT manager in the 30% slab, holds 1,000 shares that pay ₹20 a share. She receives ₹20,000 minus TDS of ₹2,000, so ₹18,000 reaches her bank. Her actual tax is ₹6,240 (30% plus 4% cess). She pays the balance ₹4,240 with her return or advance tax. A retired parent with total income under the rebate limit could file Form 121 and receive the full ₹20,000 without TDS. Our guide on senior citizen tax planning (/insights/senior-citizen-tax-planning-interest-pension-rent) covers this in detail, and advance tax for investors (/insights/advance-tax-for-investors) explains instalments. Dividend stripping: the trap in buying for the dividend Some investors buy just before the record date, collect the dividend and sell at a lower price to book a loss. The tax law blocks this. If you buy within three months before the record date and sell within three months after, the loss is ignored to the extent of the dividend received. In any case, the dividend is taxed at slab while the price fall is only a capital loss, so the trade usually loses money after tax. How are share buybacks taxed from April 2026? A buyback is when a company purchases its own shares from shareholders, usually at a premium to the market price. Since the SEBI Buy-back Regulations were amended, listed company buybacks through the open-market route were phased out from 1 April 2025, so most buybacks are now tender offers . At least 15% of the buyback is reserved for small shareholders, who hold shares worth up to ₹2 lakh on the record date. The tax treatment has changed three times in three years. Buyback date Who pays tax How it works for you Up to 30 Sep 2024 Company Company paid about 23.3% buyback tax on distributed amount; your receipt was exempt 1 Oct 2024 to 31 Mar 2026 Shareholder Whole payout taxed as dividend at slab; cost of shares treated as a capital loss From 1 Apr 2026 Shareholder Capital gain = buyback price minus cost; taxed at 20% (STCG) or 12.5% (LTCG above ₹1.25 lakh) The Finance Act, 2026 removed the clause that deemed buyback proceeds to be a dividend. For a non-promoter shareholder, a buyback is now treated like a sale. Promoters face additional tax, taking their effective rate to about 22% for domestic companies and 30% for other promoters, according to an analysis by Vinod Kothari Consultants. Worked example: a 2026 tender offer Rahul bought 200 shares of a listed IT company at ₹1,000 in 2023. In 2026 the company announces a buyback at ₹1,500. Only 30 of his shares are accepted. He receives ₹45,000. From 1 April 2026: gain is ₹45,000 minus ₹30,000 cost = ₹15,000 LTCG. If his ₹1.25 lakh exemption is unused, tax is nil; if already used, tax is ₹1,875 at 12.5% (plus cess). Under the 2024–26 rules: all ₹45,000 would have been dividend, taxed at 31.2%: ₹14,040. The ₹30,000 cost became a capital loss usable only against capital gains. Bar chart of buyback tax for shareholders before October 2024, until March 2026 and from April 2026 The remaining 170 shares stay with Rahul at their original ₹1,000 cost. The acceptance ratio, the share of tendered shares the company actually buys, is often low for large shareholders and higher for small shareholders because of the 15% reservation. Should you tender your shares? Compare the buyback price with the market price after accounting for the likely acceptance ratio. Shares not accepted are returned, and the market price often falls after the offer closes. If your long-term view on the company is unchanged and the gain would use up your LTCG exemption, tendering only part of your holding can be sensible. Our guide to capital gains tax on shares and tax harvesting (/insights/capital-gains-tax-shares-tax-harvesting) shows how to plan around the ₹1.25 lakh limit. What are bonus shares, and how are they taxed? A bonus issue gives existing shareholders free additional shares, funded from the company's reserves. In a 1:1 bonus you get one new share for each share held. The share price adjusts so total value stays about the same. No tax on receipt: getting bonus shares is not income. Cost of bonus shares is nil: when you sell them, the whole sale price is a capital gain. Holding period: starts from the date of allotment of the bonus shares, not from when you bought the original shares. Faster credit: for bonus issues announced from 1 October 2024, SEBI requires the shares to be credited on T+1 and tradable on T+2 from the record date. A bonus-stripping rule also applies. If you buy shares within three months before the record date, sell the original shares within nine months after, and receive bonus shares you keep, any loss on the original shares is ignored. It is instead added to the cost of the bonus shares. What is a stock split, and is it taxed? A stock split divides each share into smaller units by reducing its face value. A ₹10 face-value share split five ways becomes five shares of ₹2 each. Price falls in proportion, and your total value is unchanged. Companies split to make shares more affordable and liquid. A split is not a taxable event. Your original cost is spread across the new shares, and the holding period continues from the date you bought the original shares. A ₹6,00,000 investment in 100 shares becomes 500 shares with a cost of ₹1,200 each. Comparison of bonus shares and stock split cost and holding period for tax in India Buyback, bonus, split and dividend compared Action Cash to you? Tax when it happens Cost for later sale Holding period Dividend Yes Slab rate; 10% TDS above ₹10,000 No change No change Buyback (from 1 Apr 2026) Yes, for accepted shares Capital gains on profit Remaining shares keep original cost From original purchase Bonus No None Nil for bonus shares From bonus allotment Split No None Original cost spread over new shares From original purchase Key numbers for dividend TDS, bonus trading, buyback reservation and LTCG exemption in India Which is better for shareholders: dividend or buyback? From a tax point of view, buybacks are now more efficient for most individual shareholders. A dividend is taxed in full at slab rates, up to 31.2% (higher with surcharge). A buyback is taxed only on the gain, at 12.5% or 20%, and long-term gains can use the ₹1.25 lakh exemption. But you do not choose; the company does. And neither creates value by itself: cash leaving the company reduces its assets by the same amount. What matters is whether the business keeps growing. Our guide to reading quarterly results (/insights/how-to-read-quarterly-results) helps you judge that, and dividend yield funds (/insights/equity-savings-dividend-yield-funds) are an option if you want a diversified dividend tilt. Practical checklist for shareholders Keep KYC, PAN and bank details updated with your depository participant, so dividends are paid and TDS is at 10%, not 20%. Track record dates on NSE and BSE corporate announcements, and buy at least one trading day before. Check Form 26AS and AIS after each dividend and buyback to confirm the TDS and amounts reported. Record cost changes after bonuses and splits; your broker's tax P&L may not always get it right. Claim unclaimed dividends. Dividends unclaimed for seven years move, with the shares, to the Investor Education and Protection Fund, from where you must apply to recover them. Our guide to demat basics: nominees, DDPI and pledging (/insights/demat-account-nominee-ddpi-pledge) covers account hygiene, and direct equity investing: taxation and costs (/insights/direct-equity-investing-india-taxation-guide) covers the wider tax picture. Related reading Capital gains tax on shares and tax harvesting (/insights/capital-gains-tax-shares-tax-harvesting) The new Income-tax Act 2025: what changed for investors (/insights/income-tax-act-2025-changes-individuals) ESOP and RSU taxation for IT employees (/insights/esop-rsu-taxation-india) How to read a company's quarterly results (/insights/how-to-read-quarterly-results) Tax planning FY 2026-27: old vs new regime (/insights/tax-planning-guide-india) Frequently Asked Questions How is a share buyback taxed in India in 2026? For buybacks on or after 1 April 2026, a non-promoter shareholder pays capital gains tax on the buyback price minus the cost of the shares. Shares held over 12 months attract 12.5% above the ₹1.25 lakh yearly exemption; shorter holdings attract 20%. Between 1 October 2024 and 31 March 2026, the whole payout was taxed as dividend. What is the difference between record date and ex-date? The record date is when the company checks who its shareholders are. The ex-date is the first day the share trades without the benefit. Under India's T+1 settlement, the two are the same day, so you must buy the share at least one trading day before the record date to receive the dividend, bonus or split. Is TDS deducted on dividends? Yes. Companies deduct 10% TDS when dividends to a resident individual exceed ₹10,000 from that company in a financial year, or 20% if PAN is missing. If your income is below the taxable limit, you can submit Form 121, which replaced Forms 15G and 15H from April 2026. TDS is adjusted against your final tax. What is the cost of bonus shares for capital gains? The cost of bonus shares is nil, so the entire sale price is a capital gain. The holding period for bonus shares starts from their allotment date. The original shares keep their own cost and purchase date. Bonus-stripping rules can disallow a loss on the original shares if bought and sold around the record date. Do I pay tax when a stock splits? No. A split only changes the number of shares and their face value. Your total cost is divided across the new shares, and the holding period continues from your original purchase date. Tax arises only when you later sell, at normal capital gains rates. Should I buy a share just before the dividend record date? Usually not for the dividend alone. The price tends to fall by roughly the dividend on the ex-date, and the dividend is taxed at your slab rate. If you buy within three months before the record date and sell within three months after, any loss up to the dividend amount is also ignored for tax. Is it worth participating in a buyback? It depends on the premium over the market price, the expected acceptance ratio and your tax position. From April 2026, only your gain is taxed, which makes tendering more attractive than it was in 2024–26. Small shareholders benefit from the 15% reservation, which often means a higher acceptance ratio. Sources: Vinod Kothari Consultants: buyback taxation after Budget 2026 (https://vinodkothari.com/2026/02/buyback-taxation-rationalised-with-limited-relief-to-promoter-shareholders/) ; ELP: Budget 2026 buyback tax (https://elplaw.in/wp-content/uploads/2026/02/Budget-Buzz-BuyBack-Tax.pdf) ; TDSMAN: TDS on dividend under section 393(1) (https://blog.tdsman.com/2026/05/tds-on-dividend-section-3931-section-194/) ; Business Standard: SEBI's T+2 bonus trading rule (https://www.business-standard.com/amp/markets/news/sebi-shortens-bonus-issue-time-trading-to-start-t-2-days-from-record-date-124091601177_1.html) ; Kotak Neo: ex-date and record date under T+1 (https://www.kotakneo.com/support/what-does-ex-date-and-record-date-mean/) . Worked examples are Money n Wealth calculations. Got a buyback offer or a dividend-heavy portfolio? The right decision depends on your cost, holding period and tax slab, and we can work it through with you. Talk to Money n Wealth (/contact) for a free portfolio review. This article is for general educational purposes only and does not constitute financial advice. Figures and examples are illustrative. Please consult a qualified financial adviser for guidance specific to your situation. Money n Wealth (Predics Fintech Services Pvt Ltd) is an AMFI-registered Mutual Fund Distributor (ARN-121995) and APMI-registered PMS Distributor (APRN07444); it is not a SEBI-registered investment adviser and may earn distribution commission on investments made through it.
Frequently Asked Questions
How is a share buyback taxed in India in 2026?
For buybacks on or after 1 April 2026, a non-promoter shareholder pays capital gains tax on the buyback price minus the cost of the shares. Shares held over 12 months attract 12.5% above the ₹1.25 lakh yearly exemption; shorter holdings attract 20%. Between 1 October 2024 and 31 March 2026, the whole payout was taxed as dividend.
What is the difference between record date and ex-date?
The record date is when the company checks who its shareholders are. The ex-date is the first day the share trades without the benefit. Under India's T+1 settlement, the two are the same day, so you must buy the share at least one trading day before the record date to receive the dividend, bonus or split.
Is TDS deducted on dividends?
Yes. Companies deduct 10% TDS when dividends to a resident individual exceed ₹10,000 from that company in a financial year, or 20% if PAN is missing. If your income is below the taxable limit, you can submit Form 121, which replaced Forms 15G and 15H from April 2026. TDS is adjusted against your final tax.
What is the cost of bonus shares for capital gains?
The cost of bonus shares is nil, so the entire sale price is a capital gain. The holding period for bonus shares starts from their allotment date. The original shares keep their own cost and purchase date. Bonus-stripping rules can disallow a loss on the original shares if bought and sold around the record date.
Do I pay tax when a stock splits?
No. A split only changes the number of shares and their face value. Your total cost is divided across the new shares, and the holding period continues from your original purchase date. Tax arises only when you later sell, at normal capital gains rates.
Should I buy a share just before the dividend record date?
Usually not for the dividend alone. The price tends to fall by roughly the dividend on the ex-date, and the dividend is taxed at your slab rate. If you buy within three months before the record date and sell within three months after, any loss up to the dividend amount is also ignored for tax.
Is it worth participating in a buyback?
It depends on the premium over the market price, the expected acceptance ratio and your tax position. From April 2026, only your gain is taxed, which makes tendering more attractive than it was in 2024–26. Small shareholders benefit from the 15% reservation, which often means a higher acceptance ratio.
Got a buyback offer or a dividend-heavy portfolio?
The right decision depends on your cost, holding period and tax slab, and we can work it through with you. Talk to Money n Wealth for a free portfolio review.
