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Lok Sabha Passes Finance Bill: Relief for Startups, Clarity on Buyback Taxation
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On Wednesday, the Lok Sabha approved the Finance Bill after incorporating 32 amendments introduced by Finance Minister Nirmala Sitharaman. Among the key changes, it was clarified that capital gains arising from share buybacks, particularly for promoters, will attract an additional income tax surcharge of 12%.
The Bill seeks to replace the earlier dividend taxation framework for buybacks and reintroduces the capital gains tax mechanism. It also includes provisions for an extra tax in cases where promoters are involved in share buybacks, with the revised amendment now clearly defining its applicability.
Experts noted that the new framework shifts the tax liability on buybacks to shareholders, although there was earlier ambiguity regarding the surcharge, especially for high-income individuals and promoters. With the latest amendment, the surcharge has been fixed at 12%, which is expected to ease the overall tax burden, according to Amit Maheshwari, Managing Partner at AKM Global.
In addition, the Bill brings relief for startups by revising the tax holiday criteria. Previously applicable to startups with turnover up to Rs 100 crore, the eligibility limit has now been significantly increased. As per Pranav Sayta of EY India, startups with turnover of up to Rs 300 crore can now avail tax holiday benefits starting from the financial year 2026–27.
He further emphasized that most of the amendments are aimed at improving clarity and aligning the legal language with the intended provisions. Another important change addresses the timeline for taxpayers responding to reassessment or reopening notices. The updated provisions now ensure that taxpayers are granted a minimum period of 30 days to file their income tax returns in such cases.
Responding to the discussion in the Lok Sabha, Sitharaman highlighted that the Budget introduces several supportive measures for the middle class and small businesses. She stressed the government’s focus on building a trust-based tax system, reducing unnecessary difficulties for compliant taxpayers. The finance minister also remarked that India’s ongoing reforms are driven by conviction and clear intent, reflecting confidence and long-term commitment rather than compulsion.
The Bill seeks to replace the earlier dividend taxation framework for buybacks and reintroduces the capital gains tax mechanism. It also includes provisions for an extra tax in cases where promoters are involved in share buybacks, with the revised amendment now clearly defining its applicability.
Experts noted that the new framework shifts the tax liability on buybacks to shareholders, although there was earlier ambiguity regarding the surcharge, especially for high-income individuals and promoters. With the latest amendment, the surcharge has been fixed at 12%, which is expected to ease the overall tax burden, according to Amit Maheshwari, Managing Partner at AKM Global.
In addition, the Bill brings relief for startups by revising the tax holiday criteria. Previously applicable to startups with turnover up to Rs 100 crore, the eligibility limit has now been significantly increased. As per Pranav Sayta of EY India, startups with turnover of up to Rs 300 crore can now avail tax holiday benefits starting from the financial year 2026–27.
He further emphasized that most of the amendments are aimed at improving clarity and aligning the legal language with the intended provisions. Another important change addresses the timeline for taxpayers responding to reassessment or reopening notices. The updated provisions now ensure that taxpayers are granted a minimum period of 30 days to file their income tax returns in such cases.
Responding to the discussion in the Lok Sabha, Sitharaman highlighted that the Budget introduces several supportive measures for the middle class and small businesses. She stressed the government’s focus on building a trust-based tax system, reducing unnecessary difficulties for compliant taxpayers. The finance minister also remarked that India’s ongoing reforms are driven by conviction and clear intent, reflecting confidence and long-term commitment rather than compulsion.
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