A looming tax hike on share buybacks has sparked a rush among companies to complete their repurchases before the stricter rules take effect in October.

In less than a month of the July 23-budget announcement, more than 15 companies have announced buybacks against 15 in the first seven months of 2024.

Indus Tower leads with an offer of ₹2,640 crore followed by AIA Engineering and Savita Oil Tech, which will buy back shares worth ₹500 crore and ₹364 crore, respectively.

Cera Sanitaryware has offered to buy back ₹12,000 at a 19 per cent premium, against Friday’s close of ₹10,108.

The government’s decision to treat buybacks as dividend income, subjecting them to a hefty tax, has drawn fierce criticism from the corporate sector. Earlier the buyback sum was taxed by companies at a 20 per cent rate.

“This short-sighted move will discourage companies from returning capital to shareholders,” said Amit Maheshwari, tax partner at AKM Global.

“The resident shareholders, including promoters, would pay tax at 35 per cent on gross buyback amount with effect from October 1, 2024,” said Punit Shah, partner, Dhruva Advisors.

“Considering the substantial tax savings, companies are rushing to implement buybacks,”Shah said.

Industry experts warned the rush could distort the market and create an uneven playing field. “The government should reconsider this decision and provide adequate time for businesses to adjust to the new rules,” an executive said.

The PHD Chamber of Commerce and Industry has been a vocal critic of the new regime. “Treating buybacks as dividends is a misclassification,” the chamber argues. “The correct approach would be to tax them as capital gains.”

The finance ministry claimed the rule plugged a tax loophole. “Previously, companies could avoid higher dividend tax rates through buybacks,” a ministry official said.

“Now, both dividends and buybacks will be taxed in the hands of recipients.”

Critics contend the government should focus on broadening the tax base rather than increase rates.