Share Buybacks Explained: What They Are and What the New SEBI Rules Mean for Investors

Share buybacks have become one of the most common ways for listed companies to reward shareholders. Companies such as Wipro, Bajaj Auto and TCS have used buybacks to return surplus cash to investors. More recently, SEBI has reintroduced the open-market buyback route from 1 August 2026, making buybacks an even more relevant topic for investors.

This article explains how buybacks work, the different methods companies use, and what the recent regulatory changes mean for investors.

A share buyback (or share repurchase) is a corporate action in which a company buys back its own shares from existing shareholders.

Once these shares are bought back, they are generally extinguished, reducing the total number of outstanding shares in the market.

Unlike dividends, where cash is distributed to all shareholders, a buyback gives investors the choice of either selling their shares to the company or continuing to remain shareholders.

Companies undertake buybacks for several reasons:

• Return surplus cash to shareholders.

• Improve Earnings Per Share (EPS) by reducing the number of outstanding shares.

• Signal management's confidence that the shares are undervalued.

• Improve Return on Equity (ROE).

• Optimise the company's capital structure.

A buyback can often be viewed as an alternative to paying dividends, especially when management believes the company's shares are trading below their intrinsic value.

In India, companies can undertake buybacks primarily through two methods.

This is the most common form of buyback.

The company announces:

• Buyback price

• Buyback size

• Record date

• Entitlement ratio

Eligible shareholders can tender some or all of their shares at the specified buyback price.

If the number of shares offered exceeds the number the company intends to buy, shares are accepted on a proportionate basis. This is known as the acceptance ratio.

Because buyback prices are generally offered at a premium to the prevailing market price, tender offer buybacks are often attractive to investors.

In an open-market buyback, the company purchases shares directly from the stock exchange at prevailing

market prices over a specified period.

Unlike a tender offer:

• There is no fixed buyback price.

• There is no record date.

• There is no entitlement ratio.

• Investors can participate simply by selling their shares on the stock exchange during the buyback period.

SEBI has reintroduced this route through stock exchanges from 1 August 2026, after reviewing the taxation

framework and market feedback.

SEBI has amended the Buy-back Regulations, with the revised framework becoming effective from 1 August 2026. The key changes include:

Companies can once again repurchase shares directly through stock exchanges, providing greater flexibility in returning capital to shareholders.

Open-market buybacks must now be completed within 66 working days from the opening of the offer, significantly reducing the execution timeline. Additionally, Companies are required to deploy at least 40% of the total buyback size during the first half of the buyback period. This ensures that buybacks are executed steadily rather than being concentrated towards the end of the offer period.

Companies are no longer required to appoint a merchant banker for every open-market buyback. If one is not appointed, the compliance responsibilities are distributed among the company's compliance officer, statutory auditor, secretarial auditor and the stock exchanges.

To strengthen governance:

• Promoter shareholdings will remain frozen during the buyback period.

• Companies cannot undertake buybacks that would result in a breach of the Minimum Public Shareholding (MPS) requirements.

The process generally follows these steps:

• Board of Directors approves the buyback.

• Shareholders approve the proposal (where applicable).

• The company announces the buyback price, record date and buyback size.

• Investors holding shares on the record date become eligible.

• Eligible shareholders submit their shares during the tendering period.

• Accepted shares are bought back and payment is made.

• Unaccepted shares are returned to the investor's demat account.

The record date determines which shareholders are eligible to participate in a tender offer buyback.

Because Indian markets follow the T+1 settlement cycle, investors must purchase shares before the ex- date to become eligible.

Buying shares on the ex-date does not make an investor eligible for the buyback.

Not necessarily.

Investors should evaluate:

• Premium offered over the current market price.

• Expected acceptance ratio.

• Tax implications.

• Opportunity cost of holding the shares.

• The company's long-term fundamentals.

A high buyback premium may appear attractive, but a low acceptance ratio could reduce the overall benefit.

The taxation of buybacks changed significantly from 1 April 2026.

Under the revised framework:

• Gains from buybacks are taxed as capital gains.

• Tax is payable only on the actual gain after considering the cost of acquisition.

• Capital losses may be set off against such gains, subject to the provisions of the Income-tax Act.

The revised regime has made buybacks more tax-efficient for many investors compared to the earlier framework, under which the entire buyback consideration was taxed as dividend income.

• A buyback allows a company to repurchase its own shares using surplus cash.

• Buybacks can improve EPS and return capital to shareholders.

• Companies can undertake buybacks through the Tender Offer or Open Market route.

• SEBI has reintroduced open-market buybacks through stock exchanges from 1 August 2026 with

• stricter timelines and additional investor safeguards.

• Investors should evaluate buyback size, premium, acceptance ratio and tax implications before deciding whether to participate.

Understanding how buybacks work enables investors to make informed decisions whenever a listed company announces one. With the recent regulatory changes, buybacks are expected to remain and important capital allocation tool for Indian companies in the years ahead.