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• SEBI has proposed restoring the stock exchange route for share buybacks after discontinuing the mechanism in April 2025.
• The proposal follows changes in the tax treatment of buybacks, which the regulator believes have addressed concerns that led to the route's withdrawal.
• Industry bodies and market participants have sought the return of open-market buybacks, citing benefits such as improved liquidity, efficient capital deployment and greater flexibility for listed companies.
• SEBI has invited public feedback on the proposal before deciding whether to formally reinstate the mechanism.
The Securities and Exchange Board of India (SEBI) has proposed bringing back the open-market stock exchange route for share buybacks, signalling a possible policy reversal after the mechanism was phased out and eventually discontinued in 2025. The move comes amid a changed tax environment and growing demand from market participants who believe the route remains an important tool for corporate capital management.
The regulator has initiated a public consultation on whether listed companies should once again be allowed to repurchase shares through stock exchanges. The proposal follows representations from industry associations, investment bankers and market participants who have argued that open-market buybacks remain a globally accepted practice and provide companies with an additional avenue for returning surplus capital to shareholders.
SEBI had earlier decided to gradually eliminate the route after expressing concerns about its effectiveness in ensuring equitable shareholder participation. Questions had also been raised regarding the tax treatment of buyback proceeds and whether the mechanism created differing outcomes for various categories of investors. As a result, the regulator reduced the permissible size of open-market buybacks in phases before discontinuing the option entirely from April 2025.
Since then, however, the taxation framework governing buybacks has undergone significant changes. Under the revised regime, the treatment of buyback-related gains has moved closer to the capital gains framework applicable to regular market transactions. According to SEBI, these changes have substantially altered the circumstances that originally influenced the decision to withdraw the stock exchange route.
Supporters of the proposal contend that open-market buybacks offer several advantages over alternative methods. Companies are able to execute purchases gradually based on market conditions, providing flexibility in capital allocation and treasury management. Market participants have also argued that buybacks conducted through exchanges can improve liquidity, support price discovery and enable broader participation through the public market mechanism.
The regulator has indicated that any reintroduction of the route would continue to operate within a framework of existing investor-protection measures. These include disclosure requirements, monitoring mechanisms, restrictions on promoter participation and operational safeguards intended to ensure transparency throughout the buyback process. SEBI has suggested that the route would be restored as an additional option rather than a replacement for existing buyback methods such as tender offers.
The proposal reflects a broader effort by the regulator to reassess market regulations in light of evolving economic and tax conditions. By seeking public comments before taking a final decision, SEBI aims to evaluate whether the benefits of reinstating the mechanism outweigh the concerns that led to its earlier withdrawal.
If approved, the move could provide listed companies with greater flexibility in managing capital while reviving a buyback route that was once widely used across India's equity markets. The final decision is expected to depend on stakeholder feedback and SEBI's assessment of its impact on investor interests and market efficiency.
Source- SEBI
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