SEBI brings back open-market share buybacks: How your capital gains will be taxed

SEBI had phased out open-market buybacks in 2025, citing concerns over unequal treatment of shareholders and tax-related distortions.

How will buyback gains be taxed?

Under the new framework, shareholders participating in an open-market buyback will be taxed on the capital gains arising from the sale of their shares, similar to a normal stock market transaction.

With the tax burden shifting from the company undertaking the buyback to participating shareholders, selling shares through an open-market buyback is now broadly aligned with selling them on the stock exchange. This also removes the tax advantage that previously existed between shareholders who were able to participate in buybacks and those who were not.

What's changing under the new framework?

Retail investors can participate in an open-market buyback by selling their shares through the stock exchange during the buyback period.

To improve shareholder communication, SEBI said information about open-market buybacks will be disseminated electronically to shareholders in addition to the mandatory public announcements published in newspapers.

The regulator has also shortened the timeline for completing open-market buybacks. Under the new rules, a buyback offer must open within four working days of the public announcement and close within 66 working days from the opening date, compared with the earlier framework that allowed companies up to six months to complete the process.

"The buyback offer shall open within four working days from the date of the public announcement and close within 66 working days from the date of opening of the offer," SEBI said.

What should investors keep in mind?

"A buyback should be treated as a thoughtful investment decision, not just a chance to make a quick gain. The first thing to assess is whether the buyback price is truly attractive compared with the stock's current market price and your own purchase cost. Next, look at the company's fundamentals, especially cash flows, debt levels, profitability, and whether the business has the strength to grow over time," said CFP Shweta Shastri.

"It is also important to see how the buyback fits into your overall financial plan. A good buyback may still be unsuitable if it increases concentration risk, does not align with your risk appetite, or distracts from your long-term goals. Tax treatment should also be factored in, because the post-tax return is what really matters. In the end, the right decision depends not on the headline offer alone, but on valuation, business quality, and whether the opportunity genuinely adds value to your portfolio," she added.

As open-market buybacks return from August 1, shareholders will need to look at the offer price, the company's fundamentals and the capital gains tax before participating.