India Tweaks Buyback Tax Rule to Curb ‘Improper Use’ by Founders

India’s government proposed tweaking taxation rules for buyback of shares in a move that will tax company founders at a higher rate than individual shareholders.

The government will tax proceeds from buyback as capital gains for all shareholders, Finance Minister Nirmala Sitharaman said in her Budget speech Sunday.

“Change in taxation of buyback was brought in to address the improper use of buyback route by promoters,” she said. “To disincentivize misuse of tax arbitrage, promoters will pay an additional buyback tax.”

Under the proposed change, consideration received by a shareholder on buyback will not be treated as dividend income. This ...