In the Indian capital market, an old route for companies to return capital is making a comeback. SEBI has decided to reintroduce open-market share buybacks through the stock exchange route. This is a significant development because the mechanism was phased out in 2025 due to concerns over unequal treatment of shareholders and tax-related issues. The new framework aims to strike a balance between faster execution, greater transparency, lower compliance costs, and stronger investor protection.
Let us understand SEBI’s new open-market buyback framework in detail and see what is changing for companies and investors.
What’s Happening?
SEBI issued a notification on 1 July 2026 amending the share buyback regulations, which will come into effect on 1 August 2026. Under the new rules, listed companies will once again be allowed to repurchase their shares through the normal trading mechanism of the stock exchange. This route was discontinued in 2025 because it did not ensure equal treatment for all shareholders, as only investors who were able to sell their shares during the buyback period could benefit.
A share buyback is a corporate action in which a company repurchases its own shares from existing shareholders. Companies generally opt for buybacks when they have surplus cash and want to return capital to shareholders instead of distributing it through dividends. Buybacks reduce the number of outstanding shares, which may improve earnings per share (EPS) and can also support the share price during periods of market volatility. For investors, this means they can participate by selling their shares through the stock exchange during the buyback period.
What Has Changed in the Rules?
Under the new framework, open-market buybacks will be capped at 15% of a company’s paid-up capital and free reserves. This limit will be calculated based on both standalone and consolidated financial statements. As a result, larger buybacks will continue to be undertaken primarily through the tender offer route.
Companies must open the buyback offer within four working days of the public announcement and complete the entire process within 66 working days. Earlier, the process could take up to six months. The appointment of a merchant banker has now been made optional, which is expected to reduce compliance costs. If a merchant banker is not appointed, the company, its compliance officer, statutory auditor, secretarial auditor, and the stock exchange will be responsible for carrying out the required functions.
Companies must also send an electronic intimation to shareholders within one working day of the public announcement, making the process faster and more transparent.
Why Are Tax Rules and Safeguards Important?
One of the key reasons behind this change is the revised tax framework. Public shareholders participating in a buyback will now be taxed on their capital gains, just like in a regular market transaction. If the shares have been held for more than 12 months before the buyback, long-term capital gains tax of 12.5% will apply, along with the applicable surcharge and cess.
If the shares have been held for 12 months or less, short-term capital gains tax of 20% will apply, along with the applicable surcharge and cess. The tax liability has now shifted from the company to the participating shareholders, effectively removing the earlier tax advantage associated with buybacks. SEBI has also introduced a safeguard requiring the shares of promoters, the promoter group, and their associates to remain frozen at the ISIN level during the buyback period.
What Does This Mean for Investors?
For investors, evaluating a buyback now goes beyond simply looking at the buyback price. They also need to consider the applicable tax rate, securities transaction tax (STT), available tax relief under the Income Tax Act, and the possibility of setting off capital losses against capital gains.
Since buybacks now result in capital gains taxation, eligible capital losses may be adjusted against such gains, depending on the investor’s individual tax situation and the nature of the gains and losses. Investors should also assess factors such as the company’s cash position, the size of the buyback, market capitalisation, overall share capital, and the confidence signalled by the promoters. The decision to participate in a buyback should ultimately align with an investor’s investment horizon and outlook on the company’s long-term prospects.
What’s Next?
SEBI’s new framework provides companies with a faster and simpler way to return surplus cash to shareholders while ensuring that investor protection remains intact. Buybacks that breach minimum public shareholding norms will not be permitted. In addition, the gap between two buybacks has been aligned with the Companies Act, 2013, under which companies must wait at least one year before undertaking another buyback.
This change brings India’s buyback regulations closer to global practices, where open-market buybacks are a widely used method of returning capital to shareholders. Going forward, the success of this framework will depend on how responsibly companies use buybacks as a capital allocation tool and whether investors make informed participation decisions by considering both the tax implications and the company’s long-term value.
Disclaimer: This article is for educational and informational purposes only and does not constitute investment advice or a recommendation to buy or sell any securities. The companies mentioned are cited as examples within the context of market developments. Investors are advised to conduct their own due diligence and consult their financial advisor before making any investment decisions.
Investments in the securities market are subject to market risks. Read all related documents carefully before investing.
