SEBI Proposes Reintroducing Open Market Share Buybacks Via Stock Exchanges After Tax Reforms, Seeks Public Feedback

New Delhi, Apr 2: Markets regulator Sebi on Thursday proposed reintroducing buyback of shares from the open market through stock exchanges as an additional method for companies to repurchase shares, following changes in the taxation framework.

Proposal to reintroduce stock exchange route

This mechanism was discontinued effective April 1, 2025, due to concerns regarding the equitable treatment of shareholders and implications arising from the then-prevailing taxation framework.

"The reintroduction of this method of buy-back would provide companies with an additional mechanism for undertaking buy-back, while ensuring equitable opportunity and treatment of taxation for public shareholders," Sebi said in its consultation paper.

Existing buyback framework and earlier concerns

Under the existing framework, companies can undertake buybacks either through a tender offer route or via the open market using the book-building process. The stock exchange route was withdrawn earlier due to concerns over equitable treatment of shareholders and tax-related disparities.

Sebi said that under the earlier regime, buybacks through stock exchanges could result in a situation where a few shareholders cornered most of the buyback, while others willing to participate were left out due to the price-time matching mechanism.

Additionally, the then-prevailing taxation structure led to unequal outcomes among shareholders.

Tax changes address earlier issues

However, the regulator noted that subsequent changes in the taxation framework have addressed these concerns.

Following amendments through the Finance Act, 2026, buyback proceeds will now be taxed as capital gains in the hands of shareholders, replacing the earlier system where companies paid buyback tax.

As per the change in taxation framework, buy-back consideration will now be taxable under the head "Capital Gains" in the hands of the shareholders, effective from April 1, 2026.

"Consequently, the differential tax advantage that existed earlier between shareholders who were able to participate in the buy-back and those who were not would not exist any longer," Sebi said.

Revised regime ensures parity among shareholders

The regulator added that under the revised tax regime, shifting of tax burden from the company undertaking buy-back to the public shareholders participating in buy-back has made selling in a normal market equal to selling in a buy-back through the stock exchange.

Industry backs move, Sebi seeks feedback

Sebi also highlighted that the open market buyback mechanism is widely used in global markets and helps in continuous price discovery, improved liquidity, and efficient capital allocation.

Industry bodies such as FICCI and the Association of Investment Bankers of India (AIBI) have supported the move, stating that reinstating the stock exchange route would enable companies to absorb selling pressure, prevent panic selling, and enhance investor confidence.

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Under the proposal, buybacks through stock exchanges may be carried out via a separate window, as provided earlier.

The Securities and Exchange Board of India (Sebi) has sought public comments till April 23 on the proposal.

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