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When a company wants to provide liquidity to employees without an IPO or acquisition, it can do a share buyback. Company buys back vested, exercised shares from employees at a determined price.
Startup ecosystem · ESOP
Buyback of ESOPs: secondary liquidity for employees
Updated . Every paid answer is checked by a CA. Free AI answers are labelled until a CA verifies them.
Provisions
Companies Act 2013, Sec 68-70 | IT Act, Sec 115QA
Analysis
Tax on buyback (company): Sec 115QA, company pays 20% tax on buyback consideration (abolished for listed companies from Oct 2024, but still applicable for unlisted companies). Tax on buyback (employee): Post-Oct 2024 amendment, buyback proceeds are now taxed as dividend income in the hands of the shareholder, not capital gains. This can push employees into 30% slab vs previous capital gains rates. Important change from FY 2024-25.
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