Both are ways a company returns cash to shareholders. Here is how they differ: 

• Dividend — Every shareholder gets cash, proportional to how many shares they hold. Simple, automatic, no action needed. But it's taxed as income in your hands at your applicable slab rate. For example, so if you're in the 30% bracket, that's what you pay. 

• Buyback — Only shareholders who choose to participate get cash. You tender your shares, the company buys them back, and you receive the proceeds. From 1st April 2026, buyback proceeds are taxed as capital gains, not as income. Hence the taxation is different from dividend. 

Buybacks can be more tax-efficient than dividends  

A retail investor in the 30% slab pays 30% on every rupee of dividend received. But from a buyback, they only pay tax on the profit (sale price minus cost), and at just 12.5% if held long-term. That's a meaningful difference. Buybacks also reduce the total shares in the market, which can boost earnings per share, benefiting even shareholders who didn't participate.