Sebi open market share buy-back norms explained: Eligibility, timeline and impact

On 1 February, during her Budget 2026 speech, Finance Minister Nirmala Sitharaman announced changes to the taxation of share buy-back proceeds. In April and May 2026, we saw some companies announce share buy-backs through the tender route. Now, in June 2026, the Securities and Exchange Board of India (Sebi) has approved the reintroduction of share buy-backs through the open market route. In this article, we will examine how the buy-back through the open market route works and the regulations governing it.

Re-introduction of open market buy-back

On 19 June 2026, the Sebi board met and took some key decisions. One of the decisions was to approve amendments to the SEBI (Buy-back of Securities) Regulations, 2018, to re-introduce open market share buy-back through the stock exchange. The Sebi board reviewed the buy-back process in light of the revised taxation framework and feedback received from stakeholders.

The Sebi regulations for open market share buy-back through the stock exchange include the following:

Buy-back timelines

The process must be completed within 66 working days from the opening of the buy-back. At least 40% of the funds earmarked must be utilised during the first half of the buy-back period. The interval between two buy-backs has been aligned with the Companies Act, 2013. As per the Companies Act, 2013, the minimum interval between two buy-backs must be a year. The company must provide buy-back related information to shareholders electronically, along with making a public announcement in a newspaper.

No separate window

As promoters are not allowed to participate in the open market buy-back through stock exchanges, it will be treated as a normal trading transaction. The requirement for a separate trading window and the display of the company’s identity as purchaser on the trade screen will be dispensed with.

Freezing of promoter holding

During the buy-back period, the company shares held by promoter(s) or associates will remain frozen at the ISIN level. It will ensure that there is no inadvertent dealing of shares by the promoter or their associates during the buy-back period, thereby strengthening investor protection.

The buy-backs proposed to be undertaken shall be in compliance with the minimum public shareholding requirements.

Appointment of a Merchant Banker is optional

The appointment of a Merchant Banker for undertaking the buy-back is at the company’s discretion. Sebi has done this to reduce the cost to the company and improve the ease of doing business. In the absence of the Merchant Banker, its activities will be assigned to the company, the Compliance Officer, the Statutory Auditor, the Secretarial Auditor and the stock exchanges.

Budget 2026 changes

Before 1 April 2026, the consideration received by a shareholder from a buy-back was taxed as dividend. The entire consideration amount, and not just the buy-back gain, was taxed as dividend under the head ‘Income from Other Sources’. The tax rate applied was the individual’s slab rate.

The tax treatment dissuaded shareholders, specifically those in higher tax brackets, from participating in share buy-backs. Anticipating lower shareholder participation, few companies announced a share buy-back.

On 1 February 2026, in her Budget 2026 speech, the Finance Minister announced a major change in the manner in which buy-back gains will be taxed. She said the buy-back gains will be treated as capital gains and taxed as per capital gain taxation rules.

The buy-back actual gains (after deducting the purchase price), and not the entire consideration received, will be taxed under the head ‘Capital Gains’. The tax rate will depend on the shareholding period and the applicable capital gains tax rate (short/long-term capital gain tax).

A shareholder can use capital losses from other investments to offset capital gains from a share buy-back by applying the set-off provisions. The remaining capital loss, if any, after applying set-off provisions, can be carried forward for the subsequent eight years.

Recent share buy-back announcements

Budget 2026 has made the taxation of buy-back gains taxpayer-friendly compared to the earlier taxation rules. The Budget changes are effective from 1 April 2026. As a result, in April and May, we saw share buy-back announcements (through the tender route) from some companies. For example, in April 2026, Wipro announced a ₹15,000 share buy-back. The company announced a buy-back price of ₹250 per share, a 20% premium over the market price on the day of the buy-back announcement.

Similarly, in May 2026, Bajaj Auto announced a ₹5,633 share buy-back. The company announced a buy-back price of ₹12,000 per share, a 15% premium to the market price on the day of the buy-back announcement.

In a share buy-back through the tender route, the company invites its shareholders to offer their shares back to the company on a proportionate basis at a fixed price. The price paid is at a premium to the market price. In a share buy-back through the open market route, the company buys its shares directly from the secondary market at the prevailing market price.

Additional route to undertake buy-backs

As per the existing regulatory framework, companies can undertake buy-backs through the tender offer route and open market route through book-building. The open market buy-back through the stock exchange will be effective from 1 August 2026. The process has been amended with the objective of providing greater flexibility in undertaking buy-backs, reducing procedural complexity, and strengthening investor protection.

The amendments aim to streamline the regulatory framework for buy-backs, enhance operational efficiency, and facilitate ease of doing business. The open market buy-back through the stock exchange will provide an additional route for companies to undertake buy-backs.

Gopal Gidwani is a freelance personal finance content writer with 15+ years of experience. He can be reached on LinkedIn.