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Informist, Thursday, Apr. 2, 2026

 

--SEBI floats consultation paper to reintroduce open mkt buyback of shares 

 

MUMBAI – The Securities and Exchange Board of India Thursday floated a consultation paper seeking views on a proposal to reintroduce open market buy-back of shares. The practice of companies buying back shares through stock exchanges was discontinued in April 2025, citing concerns regarding the equitable treatment of shareholders and implications from the then-prevailing taxation framework. 

 

Currently, under the amendments to the Income Tax Act of 2025, shareholders will be taxed on buyback proceeds under the head "capital gains." Earlier, the tax rules required the company to pay tax on the buyback of shares, with no tax liability for shareholders on gains made by successful participants. "While some shareholders could offload their entire shareholding through matching orders without paying tax, others who wanted to participate but whose offers did not match remained deprived of tax exemptions, rendering the buy-back from the open market through the stock exchange inequitable from a taxation perspective," SEBI said.

 

Under the new buy-back taxation framework, public shareholders will be taxed on their actual capital gains when the shares are tendered in buyback, which would be similar to selling the shares in the normal course on the stock exchange. Consequently, the differential tax advantage that had existed earlier between shareholders who participated in the buy-back and those who did not would no longer exist, the consultation paper said. The shifting of the tax burden from the company undertaking a buyback to the public shareholders participating in it has made selling in a normal market equivalent to selling in a buyback through stock exchanges, SEBI said.

 

The new finance bill also introduced an additional tax on promoter shareholders, with a view to minimising potential tax arbitrage between buybacks and dividend distributions. Thus, the concerns about inequitable treatment in taxation that led to the discontinuation of the open market buyback have been addressed, SEBI said.

 

Further, buybacks from the open market through the stock exchange are undertaken within an order-driven market mechanism, wherein order execution is determined by price-time matching, and all public shareholders have an equal opportunity to participate in the buyback under uniform conditions, SEBI said.

 

Accordingly, buyback of shares or specified securities from the open market through the stock exchange may be reintroduced, subject to appropriate regulatory provisions and compliance mechanisms, the market regulator said. The reintroduction of the method would provide companies with an additional mechanism for undertaking buybacks, while ensuring equitable opportunity and treatment of taxation for public shareholders, SEB said. As per SEBI's Buy-Back Regulations, a company can buy back its shares from existing shareholders on a proportionate basis through a tender offer and through the open market, either by a book-building process or through stock exchanges.  

 

The regulator has sought feedback on the proposal by Apr. 23. End  

 

Reported by Gopika Balasubramanium

Edited by Saji George Titus

 

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