Lok Sabha clears Finance Bill with buyback tax clarity tweaks
The Lok Sabha passed the Finance Bill 2026 on 25 March 2026, incorporating 32 government amendments.
A key amendment clarified that the additional tax on share buybacks will apply only to buybacks conducted under Section 68 of the Companies Act, 2013 — restricting its scope to domestic companies while keeping offshore entity buybacks and preference share redemptions outside the higher tax net.
A 12% surcharge on capital gains from buybacks will apply to individual and corporate shareholders.
The startup tax holiday was expanded: the turnover threshold for eligibility was raised from ₹100 crore to ₹300 crore.
A new Section 292BC was inserted with retrospective effect from 1 April 2021, protecting income tax approvals from invalidation due to insufficient reasons recorded.
Finance Minister Nirmala Sitharaman stated that India is "riding the reforms express" and described the Finance Bill as a continuation of India's structural transformation.
The Bill will now go to the Rajya Sabha, after which the Budget 2026–27 process will be complete.
The Finance Bill: Constitutional Role in India's Budget Process
The Finance Bill is a central instrument through which Parliament gives effect to taxation proposals announced in the Union Budget. Under Article 110 of the Constitution, a Money Bill (of which the Finance Bill is the primary example) must originate in the Lok Sabha. The Rajya Sabha cannot amend a Money Bill — it can only make recommendations, which the Lok Sabha may accept or reject. This asymmetry reflects the Constituent Assembly's intent that taxation, as a sovereign function with executive accountability, must be controlled by the directly elected chamber.
Key Details
- The Finance Bill is introduced by the Finance Minister on Budget Day (typically 1 February).
- It must be passed by Parliament and receive Presidential assent before 31 March to avoid a vote-on-account situation.
- The Finance Bill 2026 included 32 government amendments — a high number reflecting active post-Budget revision.
- The Budget 2026–27 process is complete only after both Houses clear the Appropriation Bill and the Finance Bill.
The Finance Bill's passage with buyback tax amendments is not merely a technical tax update — it represents the parliamentary conclusion of a budget cycle and the exercise of Parliament's sovereign taxation authority.
Share Buyback Taxation: From Company Tax to Shareholder Tax
Share buyback is a corporate action where a company repurchases its own shares from existing shareholders, reducing the share count and increasing earnings per share. Until October 2024, India taxed buybacks at the company level through a separate "buyback distribution tax" at an effective rate of ~23%, leaving shareholders tax-free. The Finance Act (No. 2) 2024 overhauled this: it abolished the company-level buyback tax and instead taxed the entire buyback proceeds received by shareholders as dividend income — taxable at individual slab rates. This was meant to align buyback and dividend taxation, preventing tax arbitrage.
Key Details
- Section 68 of the Companies Act, 2013 governs the conditions under which a company can buy back its own shares (out of free reserves, securities premium, or proceeds of specified securities).
- The Finance Bill 2026 amendment limits the new shareholder-level tax to only Section 68-compliant buybacks — keeping offshore entity redemptions and preference share redemptions outside scope.
- Buybacks by listed companies are regulated by SEBI under the SEBI (Buy-back of Securities) Regulations.
- Before 2019, buyback gains in shareholders' hands were taxed as capital gains; after 2019, the company paid buyback distribution tax; after October 2024, shareholders pay again.
The Finance Bill 2026 clarification reduces ambiguity about which buybacks trigger the new shareholder-level tax — important for corporate planning and investor certainty.
Startup Ecosystem and Tax Holiday Provisions
India's startup ecosystem — the world's third-largest — has benefited from a tax holiday under Section 80-IAC of the Income Tax Act, which allows eligible startups to claim a 100% profit deduction for 3 out of their first 10 years of incorporation. Eligibility criteria include DPIIT recognition, a limited period since incorporation, and a turnover cap. The Finance Bill 2026 raises the annual turnover threshold from ₹100 crore to ₹300 crore, making the benefit available to startups that have grown beyond early-stage but not yet reached large-company scale.
Key Details
- Over 1.4 lakh startups are DPIIT-recognised as of early 2026.
- The 3-year tax holiday can be claimed for any 3 consecutive assessment years within the first 10 years.
- The earlier ₹100 crore cap excluded many Series B/C startups that had grown but were not yet profitable.
- Raising the threshold to ₹300 crore is expected to extend benefits to an additional cohort of scaling startups.
The Finance Bill 2026 expands startup tax incentives at a time when India is positioning itself as a global innovation hub — signalling continued policy commitment to the startup ecosystem as part of the broader economic reform agenda.
- Finance Bill 2026 passed Lok Sabha on 25 March 2026 with 32 amendments.
- Buyback tax clarification limits scope to Section 68 of Companies Act, 2013.
- Surcharge on buyback capital gains: 12% for individual and corporate shareholders.
- Startup turnover threshold for tax holiday: raised from ₹100 crore to ₹300 crore.
- Section 292BC inserted retrospectively from 1 April 2021 (protects IT approvals from procedural invalidation).
- India had approximately 1.4 lakh DPIIT-recognised startups as of early 2026.
- The Rajya Sabha cannot amend a Money Bill — only recommend changes (Article 110, Constitution of India).