SEBI Guidelines on Share Buyback

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.

Tender Offer

• 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.

Open Market Purchase

• 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.

Buyback from Odd Lot Holders

• 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.

Book Building Process

• 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:

Buyback limit

A company may repurchase up to 25% of its paid-up equity capital and free reserves in a financial year.

Post-buyback debt-equity ratio

After completion of a buyback, the consolidated debt-to-equity ratio must not exceed 2:1.

Permitted route

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.

Shareholder approval

If the buyback exceeds 10% of paid-up capital and free reserves, a special resolution by shareholders is required.

Cooling-off period

A minimum gap of one year must be maintained between two buyback offers by the same company.

Acceptance mechanism

In tender offers, share acceptance is carried out on a proportionate basis if bids exceed the offered quantity.

Escrow requirement

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.

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.

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.