The Securities and Exchange Board of India (SEBI) has proposed reintroducing open-market share buybacks through stock exchanges, nearly a year after discontinuing the route, citing a more neutral tax framework and industry demand for greater flexibility.
The regulator said the mechanism could be reinstated as an additional method under existing buyback regulations, alongside the tender offer and book-building routes. Public comments are invited until April 23.
The stock exchange route was phased out and eventually discontinued from April 1, 2025, amid concerns over equitable treatment of shareholders and tax distortions that favoured select participants.
Equal opportunity under order-driven system
Under the earlier system, buyback orders could be matched with a handful of shareholders, leaving others unable to participate despite their willingness.
“The differential tax advantage that existed earlier… would not exist any longer,” SEBI said in a draft paper issued on Thursday, adding that buyback proceeds will now be taxed as capital gains in the hands of shareholders, aligning them with normal market transactions.
The mechanism operates within an “order-driven market” where execution is determined by price-time matching, offering “equal opportunity” under uniform conditions, SEBI said.
Industry backing and global relevance
Open market buybacks are widely used globally, aiding continuous price discovery and enhancing liquidity. Industry bodies, including FICCI and AIBI, have backed the move, arguing that it allows companies to gradually absorb selling pressure and deploy surplus cash efficiently.
“Promoters are proposed to be excluded from selling into the stock-exchange buy-back window, and the Finance Act, 2026 imposes additional tax and surcharge on promoter shareholders to reduce arbitrage. So direct preferential monetisation through this route appears constrained,” Rohit Jain, Managing Partner at Singhania & Co, said.
Concerns over fairness and price discovery
However, some caution that structural concerns remain. “Reintroducing open market buybacks is efficient, but it revives concerns around unequal participation and opaque price discovery,” said Raheel Patel, Partner at Gandhi Law Associates.
“The tax changes remove earlier arbitrage but don’t fully solve fairness, since not all shareholders benefit equally. Promoters may still gain indirectly through price support and EPS optics, and the route carries a real risk of subtle price influence or signalling,” Patel said.
SEBI has proposed that buybacks via stock exchanges be conducted through a separate window, with existing safeguards on price, volume and disclosures continuing to apply.