New Delhi: Markets regulator Sebi has notified rules to reintroduce share buybacks through stock exchanges, allowing companies to repurchase their own shares in the open market starting August 1, while capping the execution period at 66 working days.
The new rules by the Securities and Exchange Board of India (Sebi) allow firms to carry out share buybacks through regular trading mechanisms without a dedicated buyback window.
The move is aimed at improving flexibility and execution efficiency, while potentially enhancing the attractiveness of buybacks as a capital allocation tool for listed companies.
Sebi had phased out open-market buybacks in 2025, citing concerns over uneven treatment of shareholders and tax-related distortions, as the mechanism was seen as favouring select investors.
The reintroduction is expected to revive a capital management route widely used by corporates to return surplus cash to shareholders and support stock prices, particularly in periods of market weakness.
“With effect from August 1, 2026, the buyback from the open market through the stock exchange shall be less than fifteen per cent of the paid-up capital and free reserves of the company, based on both standalone and consolidated financial statements of the company,” Sebi said in a notification dated July 1.
This comes after the Sebi board approved a proposal in this regard in June.
Also, open market buybacks through stock exchanges would be completed within 66 working days from the date of opening of the offer, instead of the earlier framework that allowed as long as six months’ duration.
“The buyback offer shall open within four working days from the date of the public announcement and close within 66 working days from the date of opening of the offer,” Sebi said.
To reduce costs and improve ease of doing business, Sebi said that appointing a merchant banker for buybacks is now discretionary for a company. If a company chooses not to appoint one, it must ensure that the responsibilities performed by the merchant banker are carried out by designated entities.
“The requirement of engaging a merchant banker will be discretionary on part of the company undertaking buyback of shares or other specified securities under these regulations,” Sebi said.
Under the revised framework, the company will be responsible for filing the letter of offer and public announcement, submitting the final report; secretarial auditor will certify that the buyback complies with regulations and provide the due diligence certification.
Further, the statutory auditor will oversee escrow accounts, including bank guarantees, cash deposits, invocation and release of escrow funds. The compliance officer will oversee and certify the extinguishment of shares in open market buybacks.
To improve shareholder communication, Sebi said there will be dissemination of information about open market buybacks to shareholders through electronic means in addition to the public announcement being already made through newspaper advertisements.
Under the new buyback taxation framework (i.e. Capital Gain), public shareholders would 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 existed earlier between shareholders who were able to participate in the buyback and those who were not, would no longer be there.
Further, shifting the tax burden from the company undertaking the buyback to the participating public shareholders has made selling in the normal market equivalent to selling via buyback through the stock exchange.
Also, the open market buyback method through stock exchanges is widely adopted in international jurisdictions.
Sebi also said that shares or other specified securities of the company undertaking the buyback, held by promoter(s) or their associates, shall remain frozen at ISIN level during the buyback period.
The regulator also inserted an explicit provision to ensure that companies do not announce buybacks that might breach minimum public shareholding (MPS) norms.
Sebi has also aligned the minimum interval between two buyback offers with the provisions under the Companies Act, 2013, instead of maintaining a separate timeline under buyback regulations.
PTI
