Big Update: SEBI proposes return of open market buybacks after tax rule changes

The Securities and Exchange Board of India is considering allowing companies to buy back shares directly from the stock market again, a move that could change how firms return cash to shareholders.

In a consultation paper released on Thursday, the regulator proposed reintroducing open market buybacks through stock exchanges as an additional option under the current framework. The method had fallen out of favour earlier, largely due to tax-related issues.

Tax changes prompt rethink

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The rethink comes after changes in how buybacks are taxed. Under the updated rules, gains from buybacks will now be treated as capital gains in the hands of shareholders.

This brings them on par with regular market transactions and removes the earlier mismatch between those who tendered shares in buybacks and those who stayed out.

Why open market buybacks matter

SEBI said this route is widely used in global markets. Companies can buy shares gradually from the market instead of announcing a fixed-price offer, which tends to smoothen price movements and improve liquidity.

Industry groups such as the Federation of Indian Chambers of Commerce and Industry and the Association of Investment Bankers of India have been pushing for this for some time. Their view is that it helps absorb selling pressure over time, rather than triggering sharp reactions in the stock.

Transparency and equal access

According to SEBI, buybacks through the exchange follow an order-driven system. That means trades happen through standard price and time matching, giving all public shareholders an equal chance to participate.

The regulator added that the mechanism, if reintroduced, would come with safeguards to ensure transparency and proper compliance.

Next steps

SEBI has invited public comments on the proposal until April 23, 2026. If the plan goes through, companies could get a more flexible way to manage capital, while investors may see a more gradual and market-linked approach to buybacks.