Share buyback rules: SEBI proposes major changes; retail investors may benefit

Share buyback rules: The Securities and Exchange Board of India (SEBI) has proposed a fresh set of changes to India’s buyback framework aimed at improving shareholder communication, strengthening transparency and making buyback offers more relevant for investors.

In a consultation paper released on Friday, the regulator proposed reintroducing open market buybacks through stock exchanges as an additional route under the SEBI (Buy-Back of Securities) Regulations, 2018.

Direct alerts for shareholders

One of the key proposals from an investor perspective is mandatory electronic communication to shareholders regarding buyback offers. SEBI said companies may be required to “send an intimation through electronic mode regarding the buy-back offer” to shareholders within one working day of the public announcement.

According to the regulator, the proposal would “ensure that all the shareholders are duly informed promptly and are made aware of the open market buy-back through the stock exchange.”

The move could help retail investors track buyback announcements more efficiently instead of relying only on stock exchange disclosures.

Faster timelines for buybacks

The regulator said a six-month timeline recommended by the Primary Market Advisory Committee appeared “relatively long” and may make buybacks less relevant because of changing market conditions.

For investors, shorter timelines could mean quicker execution and lower uncertainty around buyback programmes.

Safeguards for minority shareholders

The consultation paper also seeks to strengthen safeguards around buyback execution. SEBI proposed retaining the requirement that companies utilise at least 40 per cent of the earmarked buyback amount during the first half of the offer period.

Among additional measures, the regulator suggested freezing promoter and promoter associate holdings during the buyback period and proposed explicit provisions to ensure companies do not undertake buybacks that may lead to a breach of minimum public shareholding norms.

The regulator has invited public comments on the proposals till May 29.

Buyback taxation

Earlier, companies used to pay the buyback tax, while investors typically received the payout without paying tax on it. Then the system shifted, and the tax burden moved to shareholders, where the full amount received was treated as dividend income and taxed according to their income tax slab.

From April 2026 (as proposed in the new framework), the idea is that buybacks would no longer be treated like “dividend income” in the hands of investors. Instead, they would be taxed like a capital gain, similar to when you sell shares in the market.

If you sell within 1 year, Short-Term Capital Gains (STCG) are taxed at 20%. If you hold for more than 1 year, Long-Term Capital Gains (LTCG) taxed at 12.5% (above ₹1.25 lakh).