Post-Budget 2026: The New Tax Map for Equity Investors

Budget 2026 changed the tax map for equity investors in three key areas: share buyback profits are now taxed as capital gains instead of dividends, STT on futures and options has increased, and investment limits for PROIs in listed Indian companies have been raised. However, equity mutual fund taxation remains unchanged as STCG continues at 20%, while LTCG above ₹1.25 lakh a year is taxed at 12.5%.

Union Budget 2026 was released on February 1, 2026, and brought several important changes for equity investors. While the long-term capital gains (LTCG) and short-term capital gains (STCG) tax rates were not altered, the Budget introduced these major modifications:

• Changes in how share buybacks are taxed
• Revised Securities Transaction Tax (STT) rates for derivatives
• Increased investment limits for Persons Residing Outside India (PROIs) 

These changes will influence both the cost of investing and the post-tax returns for many equity market participants. Let’s understand these changes in detail.

A buyback is when a company purchases its own shares from shareholders at a fixed price. For investors, it is one way of receiving money from the company, similar to dividends. Before the changes introduced in the Union Budget 2026, buybacks were taxed as follows:
 

• Buyback money received by public shareholders was treated as “dividend income.”

• It was taxed according to the individual’s income tax slab.

• The entire buyback amount was taxable (not just the profit).

• Cost of acquisition of the shares extinguished on buyback was recognised separately as a capital loss and allowed to be carried forward.

What Budget 2026 Proposes (New Rule Applicable from FY27)

Buybacks of shares will now be taxed as capital gains (not dividends). Starting April 1, 2026, only the “profit portion” will be taxed and will be calculated as follows:

• Profit = Buyback Price − Cost of Acquisition (Purchase Price + brokerage, if any)

Next, the capital gains rules will apply as follows:
 

It is to be noted that the rebate under Section 87A does not apply to capital gains chargeable to tax under section 112A of the Income-tax Act, 1961. As a result, even if your total income is under ₹12 lakh, capital gains tax still applies and must be paid. For more clarity, let’s study an example. 

Assume that:

• Shares are bought at ₹300 (Cost of Acquisition).

• Buyback price is ₹700.

• No. of shares is 1,000.

• Holding period is 3 years (long-term).

Now, if we calculate: 

• Buyback amount received is ₹7,00,000 (₹700 per share x 1,000 shares)

• Cost of Acquisition = ₹3,00,000 (₹300 per share x 1,000 shares)

• Capital Gain = ₹4,00,000 (₹7,00,000 - ₹3,00,000)

Let’s see the taxation rules:

Introduction of “Promoter Taxation”

A promoter is a person or entity that controls or manages the company. This can be:

• The founder or the founding family

• A holding company

• A foreign parent company

Note that promoters are not ordinary public shareholders. Now, as per the Union Budget 2026, these promoters are required to pay “additional buyback tax” as follows:

This tax rate applies to both long-term and short-term holding periods. 

STT (Securities Transactions Tax) is charged on stock market transactions. It is deducted automatically when a trade is executed. The stock exchange or broker collects it and sends it to the government. STT applies to:

• Equity shares

• Futures and options (F&O)

• Equity mutual funds

• Some IPO and offer-for-sale transactions

Now, in the Union Budget 2026, the government has increased STT on derivatives (both Futures and Options) as follows:

Note that there is no change in:

• Equity delivery trades

• Intraday equity trades

• Equity funds

The above new rates apply from April 1, 2026 (FY 2026–27).

PROI means Persons Residing Outside India. This term usually refers to:

• NRIs

• Overseas citizens or individuals living outside India

• Members of the Indian diaspora who invest from abroad

Realise that they are individual investors (not foreign companies or institutions). 

Such individuals make investments in Indian companies via:

• Foreign Direct Investment (FDI) or

• Foreign Portfolio Investment (FPI)

Now, before the Budget 2026, a single PROI could invest up to 5% in a listed Indian company. Whereas, if we talk about “combined investment limit,” all PROIs together could hold up to 10% in one company. But after the Union Budget 2026, these investment limits have been increased as follows:

*This applies only to listed Indian companies.

So now you know the latest changes introduced in the Union Budget 2026 for an equity investor. If we were to recap, first, share buybacks will no longer be taxed as dividends. Instead, the arising profit will be taxed as capital gains.

Second, the STT has been increased for futures and options. The STT rate of futures has increased from 0.02% to 0.05%. In contrast, the STT rate for options has increased to 0.15%. Equity delivery and mutual fund STT remain unchanged. 

Lastly, the Budget 2026 also raises equity investment limits for PROIs. The limit for a single PROI has been doubled to 10%, whereas the combined limit has been increased to 24%.

1. What changed for equity investors in Budget 2026?

For most individual equity investors, Budget 2026 brought the following key changes:

• Buybacks: From 1 April 2026, buyback gains are taxed as capital gains, not dividends.
• F&O: STT increased to 0.05% on futures and 0.15% on options.
• PROI limits: Individual investment limit increased to 10% and the overall limit to 24% in listed Indian companies.

2. What is the capital gains tax rate for FY 2026-27?

For equity-oriented mutual funds, gains on units held for 12 months or less are short-term and taxed at 20%. If held for more than 12 months, the gains are long-term and taxed at 12.5% on aggregate eligible LTCG exceeding ₹1.25 lakh in the financial year, subject to applicable conditions.

3. Did Budget 2026 change the LTCG exemption limit?

No. The LTCG exemption limit for eligible listed equity shares and equity-oriented mutual funds remains ₹1.25 lakh per financial year. This limit was introduced from FY 2024-25 and continues to apply; Budget 2026 did not raise it further.

4. How does the new tax map affect SIP investors?

Budget 2026 does not change how SIP investments in equity mutual funds are taxed. Each equity SIP instalment is treated separately when you redeem. Units held for 12 months or less are taxed at 20%, while units held for more than 12 months are taxed at 12.5% on eligible LTCG exceeding ₹1.25 lakh in a financial year. 

5. What is the STT rate on equity mutual funds now?

The existing STT applicable on redemption/sale of units of an equity-oriented mutual fund to the mutual fund continues at 0.001%, payable by the seller. Budget 2026’s STT increases were aimed at futures and options. It did not announce a new STT rate for redemption of equity-oriented mutual fund units. 

6. Where can I download the 2026-27 tax reckoner?

For a general tax reckoner 2026-27, you can use the Income Tax Department’s AY 2026-27 resources for updated tax slabs, rates, surcharge, cess, and filing requirements. For mutual fund-specific information, you can download your AMC’s mutual fund tax reckoner 2026-27, which covers capital gains, holding periods, TDS and taxation across fund categories.

• An Investor Education and Awareness Initiative by Tata Mutual Fund. 
• To know more about KYC documentation requirements and procedure for change of address, phone number, bank details, etc., please visit: https://www.tatamutualfund.com/deshkarenivesh
• Please deal only with registered Mutual Funds, details of which can be verified on the SEBI website under ‘Intermediaries / Market infrastructure institutions.’
• All complaints regarding Tata Mutual Fund may be directed to service@tataamc.com and/or https://scores.sebi.gov.in/ (SEBI SCORES portal) and/or https://smartodr.in/login
• Nomination is advisable for all folios opened by an individual, especially with sole holding, as it facilitates an easy transmission process. 
• This communication is a part of the investor education and awareness initiative of Tata Mutual Fund.