Our Products
Loans
Cards
Insurance
Investment
Stock Market
Electronics Mall
CIBIL Score
Knowledge Centre
Calculators
Our Services
My Account
Do not call
En
In India, share buybacks are governed through a structured regulatory framework set by the Securities and Exchange Board of India (SEBI). These rules define how companies may repurchase their own shares, how much capital can be used, and what procedural steps must be followed. This article outlines how the buyback policy works under SEBI buyback regulations, the permitted methods under current stock buyback rules, and how the share buyback process is carried out for listed companies.
A share buyback refers to a corporate action in which a listed company repurchases its own equity shares from shareholders. After completion, the number of outstanding shares in the market is reduced, which changes the company’s capital structure and per-share financial ratios such as earnings per share (EPS) and return on equity (RoE). Under SEBI buyback regulations, every buyback must follow a prescribed buyback policy and disclosure framework, ensuring the process is conducted through regulated channels and exchange filings.
Companies may undertake share buybacks for a range of balance-sheet and corporate-structure reasons, including:
Adjustment of capital structure
Deployment of surplus cash
Reduction in outstanding share count
Alignment with corporate financial planning
Providing a regulated exit mechanism to shareholders
These objectives are disclosed as part of the share buyback process through stock exchange filings and offer documents.
Share buyback transactions in India are carried out through defined regulatory routes under SEBI’s buyback framework. These stock repurchase methods determine how shares are acquired from shareholders and how the buyback process is executed. The share buyback methods also influence how participation, pricing, and settlement are structured, while the buyback benefits are reflected mainly through changes in share count and capital structure rather than through the method itself.
The company announces a fixed buyback price and a specific tendering period.
Shareholders can submit (tender) some or all of their eligible shares through their demat account during this window.
If the total shares tendered exceed the buyback size, acceptance is done on a proportionate basis as per SEBI rules.
This method is commonly used for large-scale share buyback programmes involving a defined shareholder base.
Shares are purchased by the company directly from the stock exchange over a specified time period.
The buyback occurs at prevailing market prices, subject to regulatory price and volume limits.
Transactions are routed through the exchange’s trading and settlement system, similar to regular secondary-market trades.
This method allows gradual stock repurchase rather than a one-time tender.
This route is used to acquire shares from investors holding odd lots (a quantity smaller than the marketable trading lot).
It provides a structured mechanism for consolidating small holdings that may otherwise be difficult to trade in the secondary market.
The buyback price and process are disclosed in the buyback offer documents.
In this method, shareholders submit bids indicating the price at which they are willing to sell their shares.
The final buyback price is determined based on the bids received within the prescribed price range.
This route is less frequently used and is generally applied in specific large-scale buyback structures.
Together, these share buyback methods define how a company carries out a stock repurchase under SEBI regulations. While the buyback benefits relate to changes in capital structure and outstanding share count, the chosen method determines the procedural and transactional framework through which the share buyback is implemented.
Share buybacks in India are governed by the SEBI (Buy-Back of Securities) Regulations. Key provisions under the current SEBI buyback framework include:
A company may repurchase up to 25% of its paid-up equity capital and free reserves in a financial year.
After completion of a buyback, the consolidated debt-to-equity ratio must not exceed 2:1.
From April 2025, buybacks by listed companies are conducted through the tender offer route, as the open-market method through stock exchanges has been discontinued.
If the buyback exceeds 10% of paid-up capital and free reserves, a special resolution by shareholders is required.
A minimum gap of one year must be maintained between two buyback offers by the same company.
In tender offers, share acceptance is carried out on a proportionate basis if bids exceed the offered quantity.
Before a buyback offer begins, the company is required to place a specified part of the total offer amount into an escrow account.
These provisions together form the core of SEBI buyback regulations and stock buyback rules.
The following are some of a merchant banker’s functions and responsibilities:
| Function | Regulatory role |
|---|---|
Appointment |
A SEBI-registered merchant banker must be appointed for every buyback |
Offer filing |
Draft and final buyback documents are filed with SEBI and stock exchanges |
Compliance verification |
The merchant banker certifies adherence to SEBI buyback regulations |
Merchant bankers ensure that the share buyback process follows regulatory and disclosure requirements.
Under Indian tax law:
For listed-company tender offer buybacks, the company pays buyback tax under Section 115QA of the Income Tax Act.
Shareholders whose shares are accepted in such buybacks are not subject to capital gains tax on that transaction.
Open-market buybacks (now discontinued) were taxed under normal capital gains rules.
These provisions are applied as per the prevailing tax framework notified by the government.
Share buybacks alter the number of outstanding shares and the way transactions are processed for participating shareholders. The following points describe how buybacks affect shareholding and settlement at an account level.
Reduction in outstanding shares
When a company completes a buyback, the shares accepted under the offer are extinguished, reducing the total number of equity shares recorded with the depositories. This change is reflected in post-buyback share capital disclosures.
Change in per-share financial ratios
Because the total number of shares decreases, metrics such as earnings per share (EPS) and book value per share may change based on the revised share count, as reported in the company’s financial statements.
Tender offer exit mechanism
In a tender-offer buyback, shareholders may submit their shares for consideration at the buyback price set by the company. Acceptance is carried out on a proportionate basis if the offer is oversubscribed.
Tax treatment in listed tender offers
For buybacks conducted through the tender-offer route by listed companies, buyback tax under Section 115QA of the Income Tax Act is paid by the company. In such cases, shareholders are not subject to capital gains tax on the shares accepted. Open-market buybacks continue to follow normal capital gains tax rules.
These effects describe how buyback transactions are reflected in shareholding records, financial reporting, and settlement processes under the applicable regulatory and tax framework.
Buybacks also have certain limitations to consider:
| Aspect | Description |
|---|---|
Valuation impact |
The buyback price may differ from prevailing market prices |
Short-term price movement |
Share prices may change around the buyback period |
Cash utilisation |
Funds used for buybacks are no longer available for other corporate uses |
Capital allocation |
Buybacks alter the company’s balance-sheet structure |
These factors are disclosed in buyback offer documents under SEBI buyback regulations.
The share buyback process under SEBI regulations follows these exchange-regulated steps:
Buyback proposal approved by the company’s board or shareholders
Public announcement and filing with stock exchanges
Record date fixed to determine eligible shareholders
Tender offer window opens for eligible shareholders
Shares are accepted on a proportionate basis if oversubscribed
Settlement takes place through demat and banking systems
All stages are governed by stock buyback rules issued by SEBI and the exchanges.
Share buybacks in India operate within a defined regulatory structure under SEBI buyback regulations. Through disclosure requirements, acceptance rules, and settlement processes, the framework standardises how companies repurchase shares and how shareholders participate. The buyback policy, stock exchange oversight, and the formal share buyback process together ensure that such corporate actions take place within a regulated market environment.
This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.
A buyback reduces the company’s outstanding shares and allows eligible shareholders to tender shares under the specified buyback terms. Financial ratios and shareholding percentages may change after completion.
Buyback proposals and timelines are disclosed through stock exchange filings, SEBI-mandated public announcements, and company notices.
Yes. In a tender-offer buyback, shareholders can submit any number of eligible shares, subject to the final acceptance being determined by the company’s proportionate allotment.
Buybacks and dividends are separate corporate actions. A buyback does not automatically alter a company’s dividend policy.
A buyback reduces the number of outstanding shares by the company repurchasing them, while a dividend involves distributing cash to shareholders from the company’s profits or reserves.
A share buyback is a regulated process in which a listed company repurchases its own equity shares in accordance with the SEBI (Buy-Back of Securities) Regulations.
Shareholders holding shares as of the record date specified in the buyback announcement are eligible to participate, subject to the terms of the offer.
SEBI prescribes specific timelines for opening, closing, settlement, and completion of buybacks, which vary depending on the buyback method used.
Yes. Buybacks are restricted during sensitive periods such as unpublished price-sensitive information windows, in line with SEBI’s disclosure and insider-trading regulations.
.jpeg)
250 Views
| 1min read
Posted on 19 Dec
146916
Unlock the world of credit! From picking the perfect card to savvy loan management, navigate wisely.
96679
Money Management and Financial Planning covers personal finance basics, setting goals, budgeting...
28344
Explore the investment cosmos! From beginner's guides to sharp-witted strategies, explore India's treasure trove of options.
35375
Navigate the tax maze with ease! Uncover Income Tax 101, demystify jargon with Terms for Beginners, and choose between Old or New Regimes.
18725
Discover essential insights on various types of insurance in India.
4553
Welcome to Tech in Finance, where we explore the exciting intersection of technology and finance...
Academy 
.jpeg "image not found"){kind=small}
