SEBI has reinstated the open-market share buyback route through stock exchanges starting August 1, 2026. This new framework imposes a 15% capital limit and a strict 66-day completion window to ensure fairness. By shifting tax liability to shareholders, the regulator has removed previous tax distortions that led to the earlier phase-out.
The Securities and Exchange Board of India (SEBI) has officially announced the return of the open-market share buyback mechanism, allowing companies to repurchase shares directly through stock exchange trading platforms starting August 1, 2026. This policy change effectively reverses the regulator's 2025 decision to discontinue this specific route for capital allocation. The new framework is designed to balance company requirements for capital management with enhanced protections for retail investors.
Stricter Rules for Buybacks
Under the revamped guidelines, listed companies are now subject to clearer operational constraints. The total buyback size is capped at 15% of the company's paid-up capital and free reserves, based on both standalone and consolidated financial statements. To ensure that buybacks are completed efficiently, SEBI has mandated a 66-working-day completion window from the date the offer opens. Furthermore, companies are required to initiate the buyback process within four working days of the public announcement. These changes are intended to prevent the prolonged uncertainty sometimes associated with open-market buyback programs.
Tax Changes and Shareholder Equity
The primary reason for the earlier discontinuation of this buyback method in 2025 was the potential for unequal treatment among shareholders and significant tax distortions. Previously, the tax burden fell on the company, which created a divergence between buyback participation and regular market transactions. Under the new regime, the tax liability is shifted directly to the participating shareholders, who will now be taxed on their capital gains at rates consistent with normal stock sales. This adjustment is intended to create a level playing field, ensuring that the tax outcome for a shareholder selling during a buyback is comparable to selling shares on the open market.
Enhanced Safeguards and Compliance
To maintain market integrity, SEBI has introduced several additional safeguards. The practice of freezing promoter and associate-held shares at the ISIN level throughout the buyback period is now mandatory to prevent any unauthorized activities. Furthermore, companies must ensure that any announced buyback does not result in a breach of minimum public shareholding requirements. While the appointment of a merchant banker has been made optional to help reduce corporate compliance costs, the responsibility for oversight now rests with the company’s internal compliance officer, statutory auditors, and the respective stock exchanges. Companies are also required to provide electronic updates alongside traditional newspaper advertisements to ensure wider information accessibility for all investors.
Investors may monitor how individual companies utilize this reinstated mechanism in their upcoming capital allocation strategies. The effectiveness of the new framework will depend on how quickly firms adapt to the stricter 66-day timeline and whether the shift in tax liability impacts the frequency of new buyback announcements in the coming quarters.