A flat 12% surcharge will be levied on capital gains earned by individual or corporate shareholders by selling shares in the buyback offer of companies from April 1, as per the amendments in the Finance Bill approved by the Lok Sabha on Wednesday.

The government on Wednesday introduced 32 amendments to the Finance Bill 2026, which was later approved by the House. The amended Finance Bill will be taken up for consideration by the Rajya Sabha on Friday.

Commenting on the amendments, Nangia Global Advisors, M&A Tax Partner, Sandeepp Jhunjhunwala said imposing a flat 12% surcharge on capital gains from buybacks for individual shareholders would significantly raise their effective tax cost, as a lower surcharge structure was applied earlier.

Currently, no surcharge is levied on taxable income up to ₹50 lakhs, while taxable income between ₹50 lakhs and ₹1 crore attracts a 10% surcharge on capital gains from buybacks.

"Moving to a flat 12% surcharge means higher tax outgo across these brackets, making buybacks a costlier route for cash extraction compared to alternatives such as dividends. This is likely to discourage individual shareholder inclination for buybacks and distort capital allocation decisions," Jhunjhunwala said.

He said the impact of this amendment, however, would largely be limited to small and mid-sized buybacks.

Large buybacks, where gains exceed ₹1 crore, are already subject to a higher surcharge rate of 15%, Jhunjhunwala said, adding that "the amendment actually implies a 3% reduction in surcharge for such category".

For corporate shareholders, the flat 12% surcharge on buyback may have an impact in situations where taxable income is up to ₹1 crore, where no surcharge was applied earlier.

Where taxable income falls between ₹1 crore and ₹10 crore, a 7% surcharge is applied.

"In both scenarios, the shift to a uniform 12% surcharge increases the overall tax burden, thereby making buybacks relatively more expensive," Jhunjhunwala said.

The amendments incorporated in the Finance Bill also include one retrospective amendment to circumstances in which approvals by the income tax authority would not be considered invalid.

Explaining the amendment, Jhunjhunwala said that the amendment clarifies that electronically granted approvals in assessment, reassessment or recomputation proceedings cannot be invalidated due to inadequate reasoning, authentication defects, or absence of a digital signature, with retrospective effect from April 1, 2021.

This appears to be a curative and validation provision aimed at safeguarding the legality of electronically issued documents previously, he said.

"It could nullify taxpayers' positions in pending disputes and revive cases that might otherwise have been struck down due to procedural lapses," Jhunjhunwala said.

This amendment follows the earlier proposal in Finance Bill 2026 relating to DIN, proposed to be retrospectively effective from October 1, 2019, which aimed to prevent assessments from being annulled merely on account of omission in quoting DIN.

"The amendments reflect a policy shift towards prioritising the substance over form doctrine, ensuring that proceedings are not invalidated merely due to deficiencies such as authentication issues or absence of digital signatures," Jhunjhunwala said.

(Except for the headline, Fortune India has not edited the contents of this PTI news copy.)