New Delhi, March 30 -- The taxation of share buybacks in India has come full circle, reflecting the government's continuing effort to balance revenue considerations with anti-avoidance safeguards. Before 2013 buybacks were treated akin to a sale of shares, with shareholders taxed on the resulting capital gains. There was no tax incidence at the company level, making buybacks an attractive and tax-efficient route for distributing surplus cash. However, this shareholder-centric regime raised concerns for policymakers, as companies increasingly used buybacks to sidestep the then-prevailing dividend distribution tax, thereby corroding the tax base.

In 2013 the rules changed and a new buyback tax was introduced, similar to the prevailing divi...