Summary of this article
Sebi has proposed to reintroduce open market share buybacks
The proposal comes after representations from industry bodies and tax reforms
The Securities and Exchange Board of India (Sebi) has proposed to bring back open market share buybacks through the stock exchanges. The move marks a big shift in capital market rules after changes in tax regulations.
In a consultation paper released on April 2, 2026, Sebi suggested that companies be allowed once again to repurchase their shares directly from the secondary market. This will be in addition to the existing buyback regulations. Incidentally, Sebi had discontinued this method in April 2025 due to tax-related concerns.
With the recent tax reforms which addressed these earlier inequities, Sebi has now proposed to reintroduce share buyback through the exchanges.
“Shifting of tax burden from the company undertaking buyback to the public shareholders participating in buyback, has made selling in the normal market equal to selling in buyback through stock exchange. Further, the open market buyback method through stock exchange is also a widely adopted method in international jurisdictions which facilitates continuous price discovery and enhances liquidity,” Sebi said.
Sebi said that the revised provisions in the Income Tax Act, 2025 will tax buyback proceeds as capital gains tax in the hands of the shareholders.
This change now aligns the tax treatment of buybacks similar to regular market transactions and thus eliminates the previous parity between shareholders who participated in the buyback process and those who did not participate in it.
“Accordingly, buyback of shares or specified securities from the open market through the stock exchange may be re-introduced, subject to appropriate regulatory provisions and compliance mechanisms. 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,” Sebi added.
The move comes following representations from industry bodies to reopen the open market share buyback mechanism. Industry bodies, such as Federation of Indian Chambers of Commerce and Industry (FICCI) and the Association of Investment Bankers of India (AIBI) have argued that open market share buybacks is a preferred mode globally due to the efficiency, while also stabilising markets. They have also said that this method allows companies to absorb the selling pressure gradually, which prevents sharp and panic-driven falls in share prices. It also allows companies to deploy their surplus cash reserves effectively, they said.
Sebi has said that open market buybacks will operate in a systematic order and ensure transparency through price-time matching and provide equal opportunity to all public shareholders. The markets regulator has sought comments on the proposal by April 23, 2026.
