SEBI to Allow Open Market Share Buybacks From August 1, Caps Execution at 66 Days

Markets regulator Securities and Exchange Board of India (SEBI) has notified new rules to reintroduce share buybacks through stock exchanges, effective August 1, 2026. Companies will be permitted to repurchase their own shares in the open market, with a maximum execution period of 66 working days.

Under the new framework, buybacks will be conducted through regular trading mechanisms without requiring a dedicated buyback window. SEBI stated that the buyback amount must be less than 15 per cent of the company's paid-up capital and free reserves, based on both standalone and consolidated financial statements.

SEBI had phased out open-market buybacks in 2025 due to concerns over unequal treatment of shareholders and tax-related distortions, as the mechanism was seen to favour select investors. The reintroduction is intended to improve flexibility and execution efficiency, potentially enhancing the attractiveness of buybacks as a capital allocation tool for listed companies.

The buyback offer must open within four working days from the date of the public announcement and close within 66 working days from the opening date. This replaces the earlier framework that allowed up to six months for completion.

To reduce costs and ease compliance, SEBI has made the appointment of a merchant banker discretionary. If a company decides not to appoint a merchant banker, the associated responsibilities are assigned to the company, compliance officer, statutory auditor, secretarial auditor, and stock exchanges.

Shareholder communication will be improved by disseminating information about open-market buybacks through electronic means, in addition to the existing public announcement via newspaper advertisements.

Under the new taxation framework, public shareholders will be taxed on their actual capital gains when shares are tendered in a buyback, similar to selling shares in the normal course on the stock exchange. This eliminates the differential tax advantage that previously existed between shareholders who could participate in the buyback and those who could not. Shifting the tax burden from the company to participating public shareholders makes selling in the normal market equivalent to selling via buyback through the stock exchange.

SEBI also stated that shares held by promoters or their associates in the company undertaking the buyback must remain frozen at the ISIN level during the buyback period. An explicit provision has been inserted to ensure that companies do not announce buybacks that might breach minimum public shareholding (MPS) norms.

Additionally, SEBI has aligned the minimum interval between two buyback offers with the provisions under the Companies Act, 2013, instead of maintaining a separate timeline under buyback regulations. The open market buyback method through stock exchanges is widely adopted in international jurisdictions.