Major step by SEBI: plans to revive open market share buybacks after tax reforms

The Securities and Exchange Board of India (SEBI) has proposed reintroducing open market share buybacks through stock exchanges, marking a significant policy shift in capital market regulations following recent tax reforms.

In a consultation paper released on Thursday, SEBI suggested that companies should be allowed to repurchase shares directly from the secondary market as an additional mechanism under existing buyback regulations. The method, previously discontinued due to tax-related concerns, is now being reconsidered following revisions in the taxation framework.

The regulator noted that under the updated Income Tax provisions, buyback proceeds will be taxed as capital gains in the hands of shareholders, aligning the treatment with regular market transactions and removing the earlier disparity between shareholders who participated in buybacks and those who did not.

The paper highlighted the international precedent: “The open market buyback method through stock exchanges is widely adopted globally, facilitating continuous price discovery and enhancing liquidity. Accordingly, buyback of shares from the open market may be re-introduced, subject to appropriate regulatory provisions and compliance mechanisms.”

In a conversation with CNBC-TV18 on March 23, experts had highlighted the importance of open market buybacks. Mohandas Pai, former Infosys CFO and board member and currently Chairman of Aarin Capital, said, “Open market buybacks are an important instrument for listed companies to manage capital structure and return surplus cash. Whenever markets face steep falls or external shocks, buybacks can protect shareholders and signal confidence in the company’s future.”

Also Read: Should SEBI allow open market buybacks now? Experts debate

JN Gupta, former Executive Director at SEBI, noted that most tax-related issues had been resolved, allowing for the potential reopening of open market buybacks with minor tweaks such as shorter windows or participation guidelines. Madhu Kela, founder of MK Ventures, cautioned that retail investor confidence must be safeguarded, given their growing role in supporting market stability amid foreign outflows.

Industry bodies including the Federation of Indian Chambers of Commerce and Industry (FICCI) and the Association of Investment Bankers of India (AIBI) have long advocated the measure, noting its efficiency in gradually absorbing selling pressure, preventing panic-driven declines, and enhancing investor confidence.

SEBI stressed that open market buybacks operate within an order-driven system, ensuring transparency through price-time matching and providing equal opportunity to all public shareholders.

The regulator has invited public comments on the proposal by April 23, 2026.