Market regulator Securities and Exchange Board of India (SEBI) on Thursday proposed reintroducing open-market share buybacks through stock exchanges, nearly a year after discontinuing the mechanism, citing changes in the tax framework and industry demand. The move could provide companies with greater flexibility in capital allocation and offer investors more opportunities to exit, especially during periods of market volatility.
In a
consultation paper released for public comments, the regulator says the move is aimed at providing listed companies with an additional method for buybacks while ensuring fair treatment of shareholders and improving market efficiency.
The proposal comes after SEBI phased out the stock exchange route for buybacks, with the method completely discontinued from 1 April 2025. The earlier decision was driven by concerns over unequal participation among shareholders and tax-related advantages for certain investors, it says.
Under the previous system, buybacks through stock exchanges operated on a price-time matching mechanism, which could result in a few shareholders benefiting disproportionately while others were unable to participate. SEBI had also flagged issues with the earlier tax regime, where companies paid buyback tax while shareholders did not, leading to uneven outcomes.
However, the regulator says these concerns have largely been addressed following changes in the tax structure. Under the revised framework introduced through the Finance Act, 2026, buyback proceeds will be taxed as capital gains in the hands of shareholders from 1 April 2026.
This brings parity between shareholders who participate in buybacks and those who sell shares in the open market, removing the earlier tax arbitrage.
The consultation paper noted that public shareholders will now be taxed on actual capital gains, similar to normal market transactions. The revised framework also includes additional tax provisions to prevent misuse by promoter shareholders.
SEBI says it has received representations from industry bodies such as FICCI (Federation of Indian Chambers of Commerce & Industry) and the Association of Investment Bankers of India, which have supported reinstating the stock exchange route. These organisations argued that open market buybacks are widely used globally and help companies manage excess liquidity, support share prices, and improve earnings per share.
They also say that the earlier concerns around tax inequity no longer apply under the new system.
Under the proposal, SEBI says the stock exchange route would be reintroduced as an additional method alongside tender offers and book-building. The framework would largely follow existing regulations, including execution through a separate buyback window, restrictions on promoter participation, and strict disclosure requirements.
Companies would also be required to adhere to limits on daily purchase volumes and price bands, and maintain escrow accounts to ensure compliance.
SEBI says that open market buybacks support continuous price discovery and enhance liquidity, making them a preferred mechanism in international markets.
The regulator has invited public comments on the proposal until 23 April 2026.
If implemented, the proposal could mark a significant shift in India’s buyback framework in line with evolving tax rules and global practices.
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