SEBI Plans Revival of Open Market Buybacks Under New Tax Regime
The move aims to ensure fair participation and equal tax treatment for all investors under the revised framework.
The Securities andExchange Board of India (SEBI) has released a consultation paper seeking stakeholder feedback on its proposal to reintroduce the buyback of shares through the open market route, marking a potential shift in the regulatory framework governing corporate capital management.
From April 1st onwards, companies were barred from buying back shares through the open market, a move driven by concerns over equitable treatment of shareholders and complications arising from the prevailing tax framework at the time.
SEBI highlighted that in open market buybacks, a company’s entire repurchase order could be absorbed by just one or a few shareholders, leaving others without the chance to participate.
This raised concerns about fairness, compounded by unequal tax treatment under the earlier regime, while companies were liable to pay tax on buybacks, shareholders who sold their shares during such transactions were exempt from capital gains tax. As a result, those unable to participate were denied this tax advantage, creating inequity in the system.
SEBI believes the buyback route can be reopened as recent tax reforms have addressed earlier concerns. Under the Finance Bill 2024 and subsequent amendments in the Income Tax Act, 2025, the tax burden on buybacks has shifted from companies to shareholders, with proceeds now taxed as capital gains.
In addition, the Finance Act 2026 introduced an extra levy on promoter shareholders to prevent arbitrage between buybacks and dividends. With these changes, the regulator notes that the inequities that led to the discontinuation of open market buybacks, particularly tax‑induced imbalances among public shareholders, have been resolved, paving the way for their reintroduction.
SEBI has proposed reintroducing open market buybacks through a dedicated buyback window on stock exchanges, as permitted under the existing regulations. The regulator stated that this method would provide companies with an additional avenue to undertake buybacks while ensuring equitable tax treatment for public shareholders.
It noted that the framework laid out in Regulation 4(iv) of the Buyback Regulations, along with the relevant circulars, would govern such transactions if reinstated, thereby aligning the process with the revised tax regime and addressing earlier concerns of inequity.
Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
