SEBI reconsiders open market route for share buybacks

SEBI reconsiders open market route for share buybacks

It has invited public comments on the proposal until 23 April

The Securities and Exchange Board of India has proposed to reinstate the stock exchange route for share buybacks, following changes in taxation rules.

This method had been discontinued from April 2025 due to concerns around fairness and tax treatment. However, now SEBI believes those concerns have been addressed.

The regulator’s consultation paper read: "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.”

Currently, companies can conduct buybacks through tender offers or book-building mechanisms. The earlier stock exchange route had raised issues of tax-related disparities and unequal participation among shareholders.

SEBI noted that under the previous framework, certain investors benefited disproportionately due to price-time matching. Tax disparities further complicated outcomes.

However, recent amendments under the Finance Act, 2026, have shifted taxation to shareholders, treating proceeds as capital gains. Effective from 1 April, this aligns tax treatment across different routes.

The consultation paper added, "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.”

The market regulator said that the revised framework placed buyback transactions on par with regular market sales, improving fairness. It also highlighted global usage of open market buybacks.

Industry bodies, including the Federation of Indian Chambers of Commerce and Industry (FICCI) and the Association of Investment Bankers of India (AIBI), backed the proposal, citing benefits such as improved liquidity and investor confidence.