[Ishika Gupta is a 3rd year B.A. LL.B. (Hons.) student at NALSAR University of Law, Hyderabad]
On 1 April 2025, the Securities and Exchange Board of India (“SEBI”) extinguished the open market buyback route through stock exchanges, completing a phase-out it had set in motion at the end of 2022. Sixteen months later, on 1 August 2026, the route will be back in operation. The SEBI (Buy-Back of Securities) (Amendment) Regulations, 2026, notified on 1 July 2026 following board approval on 19 June 2026, reinstate the stock exchange mechanism alongside the tender offer and book-building routes. A reversal this swift invites an obvious criticism: that the regulator either erred in 2025 or is erring now. This post argues that neither reading is accurate. SEBI has not changed its mind about the stock exchange route; rather, the Finance Act, 2026 changed the facts. Properly understood, the amendment is a correction responding to an external variable, and the architecture of the reinstated route confirms that SEBI’s fairness concerns remain very much alive.
The Anatomy of the Phase-Out
The stock exchange route permitted a listed company to repurchase its shares at prevailing market prices through ordinary secondary-market trades. The 2023 amendments to the SEBI (Buy-Back of Securities) Regulations, 2018 progressively reduced the proportion of a buyback that could be routed through exchanges, from 15% to 10% to 5% and finally to zero, with complete discontinuation from 1 April 2025.
Two concerns drove the phase-out. The first was structural inequity in participation. Because exchange-based buybacks execute through the price-time priority of the order book, shareholders with faster systems and closer market proximity could capture the buyback premium, while retail shareholders whose orders did not match received nothing. Unlike the tender offer route, which guarantees proportionate participation to every shareholder, the exchange route distributed its benefit by speed.
The second concern was tax asymmetry. Under the then-prevailing regime, the company bore buyback distribution tax while shareholders whose shares were bought back received a favourable outcome unavailable to those who sold in the ordinary market, or who did not participate at all. The mechanism therefore created two classes of shareholders, distinguished not by their rights but by their luck and latency.
The Tax Hinge
What changed between April 2025 and June 2026 was not SEBI’s assessment of these problems but the tax law that generated the second of them. From 1 October 2024, the buyback tax burden had already shifted from the company to shareholders, with proceeds treated as deemed dividend taxable at slab rates. The Income Tax Act, 2025, as amended by the Finance Act, 2026, completed the rationalisation with effect from 1 April 2026: buyback consideration is now taxed as capital gains in shareholders’ hands, at 12.5% for long-term gains and 20% for short-term gains, computed net of the cost of acquisition.
The consequence is that a shareholder who sells into an open market buyback and a shareholder who sells the same share to any other buyer on the same day now face materially identical tax treatment. SEBI’s own board memorandumreasons that the new framework renders the tax treatment of buyback participation substantially the same as an ordinary market sale for public shareholders, eliminating the differential advantage that had previously separated participating shareholders from everyone else. Thus the tax objection to the exchange route was dissolved by Parliament.
The Finance Act, 2026 also anticipated the obvious arbitrage risk. Promoters, who might otherwise use buybacks as a tax-efficient substitute for dividends, are subject to an additional income tax that takes their aggregate burden on buyback gains to 22% for promoter domestic companies and 30% for other promoters, together with a 12% surcharge levied only on that additional-tax component. Following amendments passed with the Finance Bill, the additional tax is confined to buybacks undertaken under section 68 of the Companies Act, 2013, excluding cross-border capital-return structures from its ambit.
Correction, Not Repentance
If the reinstatement were a genuine change of regulatory heart, one would expect the old regime to return substantially as it stood. It has not. The route returns subject to a quantitative ceiling, with exchange-route buybacks capped below 15% of the company’s paid-up capital and free reserves, computed on standalone or consolidated financial statements, whichever is lower, and it is wrapped in safeguards that only make sense if SEBI continues to distrust the mechanism’s fairness when left to operate on its own. These safeguards are discussed below.
First, execution discipline: an exchange-route buyback must be completed within 66 working days of opening, at least 40% of the earmarked funds must be deployed in the first half of the buyback period, and the pre-existing requirement to utilise at least 75% of the earmarked amount overall continues. These conditions target the pathology of the old regime in which companies announced buybacks for signalling value and executed them lethargically, keeping the participation lottery open for months.
Second, promoter exclusion is now enforced technologically rather than merely normatively. Shares held by promoters, promoter groups and their associates are frozen at the ISIN (International Securities Identification Number) level from the date of board or shareholder approval until closure of the offer, subject only to narrow exemptions for encumbrances created before the buyback commenced. A freeze at the depository level converts a compliance obligation into an operational impossibility, which is a telling choice for a regulator.
Third, the amendments introduce an express prohibition on buybacks that would breach minimum public shareholding requirements, and align the cooling-off interval between buybacks with the Companies Act rather than prescribing a separate timeline. Both changes anchor the buyback regime to structural shareholder-protection norms rather than treating it as a self-contained capital-return device.
The one respect in which the new framework is genuinely liberalising, the discretionary appointment of a merchant banker, cuts in a different direction. Where a company dispenses with a merchant banker, the functions are redistributed among the company, its compliance officer, the statutory and secretarial auditors, and the stock exchanges. Whether splitting a single gatekeeper’s end-to-end accountability across five actors is an ease-of-business gain or a diffusion of responsibility is a question the notified regulations do not answer, and one that deserves scrutiny once the first buybacks without merchant bankers occur. But even this relaxation is consistent with the correction thesis: with promoters locked out at the ISIN level and no separate trading window or purchaser-identity display, the buyback now resembles ordinary market activity, and SEBI has priced its intermediation requirements accordingly.
A Regime Still in Motion
One caveat is warranted. The Corporate Laws (Amendment) Bill, 2026, introduced in the Lok Sabha on 23 March 2026, proposes to permit a prescribed classes of companies (expected to be debt-free ones) to undertake two buyback offers in a year with a six-month gap, replacing the one-year cooling-off period in the Companies Act. SEBI’s decision to align its interval requirement with the Companies Act means the regulatory regime’s final shape is partially contingent on that Bill, which is currently referred to a Joint Parliamentary Committee and has not yet been enacted. Practitioners describing the post-August landscape should therefore resist treating the dual-buyback flexibility as settled law.
Conclusion
The episode is less a story about buybacks than about how SEBI makes rules. The regulator’s 2022–2025 tightening rested on two premises, one about market microstructure and one about tax. When Parliament removed the second, SEBI moved within months to restore the route, but rebuilt it around safeguards addressed squarely at the first premise. That is coherent, even commendable, regulatory conduct. What it exposes, however, is the dependence of securities regulation on variables SEBI does not control. A route was killed and revived within four years substantially because of decisions taken in the Ministry of Finance, and listed companies and intermediaries that dismantled their open-market buyback processes in 2025 must now rebuild them in 2026. If structural reversals of this kind are to become a feature of tax-linked securities regulation, there is a case to be made in favour of SEBI pairing them with transition frameworks and scheduled reviews, so that the market can distinguish between a regulator’s settled judgment and its response to someone else’s.
– Ishika Gupta