Buyback offers: Options for traders

Changes in the dividend taxation rates in the 2016 Budget have led to changes in the ways corporates tried to reward shareholders. Essentially, dividends received became taxable at the rate of 10 per cent for large shareholders who received more than Rs 10 lakh. However, the capital gains tax on selling shares remains at zero for equity shares which have been held for over 12 months.

A promoter can announce a buyback, extinguish some shares and cash in. At the same time, since the equity base shrinks in proportion, the ownership pattern remains unaffected. The government has been the biggest practitioner