Finance Bill 2026 cleared; limit buyback tax to domestic entities
New Delhi, Mar 25, 2026
Amendments raise start-up tax threshold, remove arrest provisions and introduce safeguards in reassessment, aiming to ease compliance and reduce litigation
Amendments moved by the government in the Lok Sabha to the Finance Bill, 2026, offer significant relief to taxpayers.
The amendments limit new tax buybacks to those under Section 68 of the Companies Act, 2013, thereby restricting their taxability; raise the turnover threshold for startup tax holidays; and remove coercive recovery measures like arrest and detention.
The amendments, listed in the official “Notice of Amendments” to the Finance Bill, 2026, also introduce procedural safeguards in reassessment proceedings and validate certain administrative actions retrospectively.
A key change relates to taxing buybacks. The original proposal in the Bill sought to tax buybacks in the hands of promoters at higher rates through an “additional tax”.
The revised amendment says this additional tax will apply only to buybacks done in accordance with Section 68 of the Companies Act, 2013.
Sandeep Bhalla, partner, Dhruva Advisors, said: “This is a taxpayer-friendly clarification. The government has kept offshore entity buybacks and redemption of preference shares outside the higher tax net. This removes an unintended overhang on cross-border and alternative capital return structures.”
According to Sandeep Chaufla, partner with Price Waterhouse & Co, this is a welcome amendment in response to clarification sought by industry.
“In the original proposal in the Finance Bill 2026, there was no clarity as to whether the additional tax on promoters on buying back shares would apply even where such a buyback of shares is done by companies that are not governed by the Companies Act. By expressly limiting the higher tax on promoters only upon buybacks undertaken in accordance with Section 68 of the Companies Act, 2013, the government has removed this ambiguity.”
The amendments also statutorily prescribe a minimum of 30 days for an assessee to furnish a return of income in response to a notice issued under Section 148 of the Income-Tax Act.
The government decided to remove arrest and detention as a tool of recovering tax arrears. The proposed amendment seeks to rationalise the recovery framework by dispensing with the coercive measure of civil imprisonment.
“While recovery officers will continue to have the powers to attach property and assets, the elimination of arrest and imprisonment provisions reflects a shift towards decriminalising non-serious tax offences,” said Amit Maheshwari, managing partner, AKM Global.
The Bill further seeks to align the Income-Tax Act with the latest startup policy of the Department for Promotion of Industry and Internal Trade (DPIIT). According to the amendment, the turnover limit for the startup tax holiday [in sub-section (16) of Section 140 of the Income-Tax Act, 2025] has been raised by substituting the word “one” with “three”, effectively increasing the threshold from ₹100 crore to ₹300 crore.
“The change is in line with the February 2026 DPIIT notification, which revised eligibility for regular startups to ₹200 crore and for deep-tech start-ups to ₹300 crore. The alignment ensures that fast-growing, innovation-driven companies no longer lose tax benefits merely because they scale rapidly … This harmonisation reflects the government’s intention to encourage scale, innovation, and long-term economic competitiveness,” said Maheshwari.
On litigation and administration, the amendments introduce several validation clauses to reduce disputes arising from procedural lapses.
A new Section 292BC has been inserted with retrospective effect from April 1, 2021, clarifying that any approval granted by an income-tax authority in assessment or reassessment proceedings shall be treated as administrative in nature and shall not be invalidated merely because of insufficiency of reasons recorded, any defect in the form or manner of communication, or the absence of a digital signature.
Similar validation provisions have been introduced for proceedings under the new Income-Tax Act, 2025, through the substitution of Section 522.
Maheshwari highlighted the broader litigation reforms.
“Procedural defects in communication issued by the tax department such as notices, orders, or summons, will not invalidate proceedings. For instance, an order will no longer be treated as invalid merely due to the absence of a document identification number (DIN). Mandatory internal approvals required for assessment or reassessment by tax officers are proposed to be treated as administrative in nature… Overall, these measures are aligned with the government’s broader objective of reducing tax litigation and enhancing the efficiency of tax administration.”
[The Business Standard]
