BT Explainer | Why Sebi has proposed the reintroduction of open market share buybacks

Corporate houses may soon be able to buy back shares once again from the stock market. The Securities and Exchange Board of India (Sebi) has released a consultation paper seeking comments from stakeholders on the proposal to re-introduce open market buyback of shares or other specified securities through stock exchange as an additional method.

Why was it discontinued?

The practice of repurchasing shares from the secondary market was discontinued effective April 1, 2025, as there were concerns over the equitable treatment of shareholders, implications arising from the then prevailing taxation framework, among other things.

Sebi said there was a possibility that the entire purchase order of the company could get matched with the sale order placed by one or very few shareholders. There was also a possibility that other shareholders who wanted to participate in the buyback could be deprived of such an opportunity.

The regulator said open market share buybacks were inequitable from a taxation perspective, too. At that time, companies had to pay a buyback tax with no tax liabilities in the hands of shareholders on gains made by successful participants. However, those shareholders who wanted to participate in the buyback but whose offers didn’t match were deprived of the tax exemptions.

Why does Sebi feel it should be reopened?

The taxation framework governing share buybacks has undergone a significant change now, with the Finance Bill 2024 shifting the buyback taxation to the shareholders from companies.

The Income Tax Act, 2025, as amended by the Finance Act, 2026, has rationalised the taxation of buyback proceeds, effective from April 1. Following these changes, share buyback considerations will now be taxable under capital gains in the hands of the shareholders.

The Finance Act 2026 has also introduced an additional tax component for promoter shareholders to minimise any potential tax arbitrage between buyback of shares and dividend distribution. The promoter shareholders also need to pay surcharge on additional tax, which is not applicable to non-promoter shareholders.

“In light of the amendments in the taxation framework introduced by the Income Tax Act, the then concerns for the discontinuation of buyback of shares or other specified securities from open market through stock exchange, now stands addressed,” the capital market regulator said.

It also noted that the buyback from the open market through stock exchanges is undertaken within an order-driven market mechanism wherein the execution of orders is determined by price-time matching and all public shareholders have an equal opportunity to participate in the buyback under uniform conditions.

Also, the shifting of the tax burden to shareholders has made selling in normal market equal to selling in buyback through stock exchanges, Sebi said in the consultation paper.

“The re-introduction of this method of buyback would provide companies with an additional mechanism for undertaking buyback, while ensuring equitable opportunity and treatment of taxation for public shareholders,” it said, adding that the buyback should be undertaken through a separate buyback window on the stock exchanges, as is already provided in the Buyback Regulations.

Stakeholders Views

The Association of Investment Bankers of India has submitted that reinstatement of the method of buyback from open market through stock exchange would allow companies to steadily absorb surplus selling pressure over a continuous period of time, prevent panic selling and restore confidence among retail shareholders.

Industry bodies, including FICCI, had made representations requesting the reintroduction of share buybacks from the secondary market. FICCI had pointed out that buybacks from open market through stock exchanges was an efficient and internationally preferred mechanism.

Sebi said the comments and suggestions on the proposal will have to be submitted by April 23, 2026.