SEBI Reopens Open Market Buybacks: New Rules Explained

byKESHAVA •
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SEBI reopens open market share buyback route with new rules from August 2026

You open your trading app and see a notification: "Company X announces share buyback." You have seen this headline a hundred times, and you have always just skimmed past it, half sure it is good news, not entirely sure why.

Then you read that SEBI just brought back a whole buyback method it had spent three years shutting down. If that makes you wonder what changed, and why the regulator reversed itself, I would call you a "Wanderer." You are not confused because this is complicated. You are confused because nobody has walked you through the full loop: what a buyback actually is, why it got banned, and why it is now back.

So, dear Wanderer, here at The Bazaar Guru, let's walk through it together.

What Is a Share Buyback, Really?

A buyback is simple at its core. A company uses its own cash to purchase its own shares back from the market, then usually cancels them.

Why would a company want fewer of its own shares floating around? Because it shrinks the total number of shares outstanding. If a company's profit stays the same but there are fewer shares to divide it among, each remaining share is worth a slightly bigger slice of that profit. That is also why a buyback can lift a company's P/E ratio and earnings per share, without the company actually growing its business. It can also shift the P/B ratio, since spending cash to buy back shares shrinks the company's book value too.

It is also a way for a company to say, without saying it outright, "we think our own stock is undervalued" or "we have more cash sitting around than we currently need for growth."

The Two Ways Companies Buy Back Shares

In India, a company can currently buy back shares in one main way: the tender offer route. Here, the company announces a fixed price (usually at a premium to the market price) and both promoters and public shareholders can offer their shares back to the company at that price.

There used to be a second way too: the open market route, where the company buys back shares directly from the stock exchange, at prevailing market prices, over several weeks, the same way any other trader would place buy orders. Only public shareholders can sell into this route, not promoters.

This second route is the one that got banned, and has now just been brought back.

Why SEBI Banned the Open Market Route

Between 2022 and 2025, SEBI steadily choked off the open market route. It cut the share of a buyback that could go through this method from 15%, to 10%, to 5%, before banning it completely from April 1, 2025.

Two real problems drove this. First, fairness: because the open market route depends on whoever happens to sell into it on a given day, some shareholders would benefit and others would not, depending on timing and luck, not on any deliberate choice by the company.

Second, tax: under the older rules, the company itself paid a buyback tax, while some shareholders whose sell orders were matched ended up with a more favourable outcome than shareholders who simply sold their shares normally on the same day. SEBI's own then chairperson called the open market method vulnerable to favouritism, and chose to push companies toward the more even-handed tender offer route instead.

You may also want to read: Why HDFC Bank, Axis Bank Fell as PSU Banks Rallied: Q1 FY27 Explained

What Changed: The Tax Fix Behind the Comeback

SEBI did not simply change its mind on its own. The tax problem that made the open market route unfair got fixed separately, by the government, not by SEBI.

The fix happened in two steps. From October 1, 2024, the tax on buyback money stopped being the company's problem. It moved to the shareholder instead, treated like a dividend for tax purposes.

Then, from April 1, 2026, the Finance Act 2026 refined this once more. Buyback money is now taxed as a capital gain in the shareholder's hands, the same way selling any share normally is taxed. Promoter shareholders also face one extra layer of tax on top, so a buyback cannot be used as a hidden workaround to avoid paying dividend tax.

With that tax loophole closed, SEBI's board approved reviving the open market route on June 19, 2026. The final rules were notified on July 1, 2026.

The New Rules, Starting August 1, 2026

From August 1, 2026, companies can once again buy back shares through the open market route, with several notable changes from the old version:

  • Open market buybacks are capped at less than 15% of the company's paid-up capital and free reserves, checked on both a standalone and a consolidated basis.
  • The whole buyback must be completed within 66 working days of opening. The older version of this route had no such urgency, it could stretch on for up to six months.
  • Companies must use at least 40% of the buyback money within the first half of that 66-day window, so they cannot delay and dump all the buying at the last moment.
  • Promoter and promoter group shares get frozen at the depository level from the day the buyback is approved until the offer closes, so insiders cannot trade around it.
  • Companies cannot launch a fresh buyback within the cooling-off period the Companies Act requires after closing a previous one, and cannot buy back shares if it would push public shareholding below the required minimum.
  • Appointing a merchant banker is now optional. If a company skips this, the company itself takes on the job of filing the offer paperwork and the final report, while the secretarial auditor certifies that the buyback followed the rules.
  • Companies must now inform shareholders electronically, on top of the older requirement of a newspaper advertisement.

As recently as July 21, 2026, SEBI directed the stock depositories to have this promoter freeze mechanism technically ready before the August 1 deadline, a sign that the operational groundwork is still actively being finalised, not just a rule sitting on paper.

What This Means for You as an Investor

If you hold shares in a company that announces an open market buyback, you are not obligated to do anything. You can simply keep holding your shares, and your ownership stake in the company edges up slightly as the total number of shares in the market shrinks.

If you do choose to sell into the buyback, remember the proceeds are now taxed as capital gains in your hands, not as a tax-free event and not as something the company absorbs on your behalf. Whether that is better or worse for you depends on your own tax situation, so it is worth checking with a tax professional before deciding, and being careful when it comes time to report it correctly. Messy capital gains reporting is one of the more common ITR filing mistakes people make.

To put a number on it: if you have held the shares for more than 12 months before the buyback, the gain is taxed as long-term capital gains at 12.5%, plus applicable surcharge and cess. If you have held them for 12 months or less, it is short-term capital gains at 20%, plus surcharge and cess.

One useful habit going forward: when you see a buyback announcement, check whether it is the tender offer route or the open market route, since the two behave very differently, and the open market kind will now show up gradually as regular buy orders on the exchange rather than one clear event.

Common Misconceptions

"A buyback announcement means the stock is a safe bet." Not necessarily. A buyback can support a stock's price for a while, but it does not change the underlying business. A weak company can still announce a buyback.

"Promoters can now sell their shares back through the open market route." No, that part has not changed. Only public shareholders can sell into an open market buyback. Promoters can only participate through the tender offer route, and their shares are actually frozen during an open market buyback, not tradable.

"Buybacks are tax-free for shareholders now." Also no. Money you receive from a buyback is taxed as a capital gain in your hands, at 12.5% if long-term or 20% if short-term, plus surcharge and cess. It is simply taxed differently than before, not left untaxed.

"Making the merchant banker optional means less oversight." The oversight has not disappeared, it has shifted. The company and the secretarial auditor now carry that responsibility directly instead of outsourcing it.

Frequently Asked Questions

What is the difference between a tender offer buyback and an open market buyback?
In a tender offer, the company sets a fixed price and both promoters and public shareholders can offer shares back at that price. In an open market buyback, the company buys shares directly from the stock exchange at whatever the market price is, and only public shareholders can sell into it.

When does the open market buyback route officially return?
From August 1, 2026, following SEBI's notification dated July 1, 2026.

Do I have to sell my shares when a company announces a buyback?
No. Participating is entirely your choice. If you hold on, your ownership share in the company simply increases slightly as total shares outstanding shrink.

How is buyback money taxed now?
As a capital gain in the shareholder's hands. If the shares were held over 12 months, long-term capital gains tax of 12.5% applies. If held 12 months or less, short-term capital gains tax of 20% applies, both plus surcharge and cess.

Why did SEBI ban the open market route in the first place?
Mainly over fairness, since only whoever happened to sell on a given day benefited, and over a tax mismatch where the company paid buyback tax while some shareholders got a better deal than others selling normally on the same day.

Key Takeaways

  • A buyback is a company purchasing its own shares back, usually to reduce share count and lift metrics like earnings per share.
  • India has two buyback routes: tender offer (fixed price, open to promoters and the public) and open market (via the exchange, public shareholders only).
  • SEBI banned the open market route by April 2025 over fairness and tax concerns, then reversed course after new tax rules fixed the underlying problem.
  • The open market route returns from August 1, 2026, capped at under 15% of paid-up capital and free reserves, with a 66 working day completion window, promoter share freezes, and a 12.5%/20% capital gains tax split for shareholders based on holding period.

Go Deeper

Disclaimer: This content is for educational purposes only and should not be considered investment advice. Markets carry risk, and past patterns do not guarantee future performance. Please consult a SEBI-registered investment advisor before making any investment decisions.
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