What is a share buyback in India in 2026?
Quick Answer: A share buyback is a company repurchasing its own shares from shareholders and cancelling them. In India it runs under section 68 of the Companies Act and SEBI's buyback regulations, by tender offer or through the open market. From 1 April 2026, the money shareholders receive is taxed as capital gains, not dividend.
Buybacks return cash to shareholders in exchange for their shares, which the company then extinguishes. Fewer shares remain in issue. Each remaining share therefore accounts for a larger proportion of the total.
The rules in India changed twice in 2026. The Finance Act, 2026 moved buyback proceeds out of dividend income, and SEBI reopened the stock-exchange route from 1 August 2026. This guide covers both, along with the limits and the tender process.
What is a share buyback?
A share buyback is a company purchasing its own shares under section 68 of the Companies Act, 2013, and then cancelling them. Funding can come from free reserves, the securities premium account or the proceeds of a different kind of issue, though section 68 bars using the proceeds of an earlier issue of the same kind of shares. Share capital falls by the amount bought back.
Listed companies follow the detailed process set by SEBI's buyback regulations. Those regulations offer two broad routes: a tender offer to existing shareholders in proportion to their holdings, or purchases from the open market.
How are share buybacks taxed in India in 2026?
Money received in a buyback in India is taxed as capital gains in 2026, under the Finance Act, 2026, which took effect on 1 April 2026. Section 35 of that Act removed buyback proceeds from the definition of dividend in section 2(40) of the Income-tax Act, 2025.
Section 42 rewrote section 69 of the Income-tax Act, 2025 for promoters. They pay normal capital gains tax plus an additional income-tax on buyback gains.
Additional income-tax on promoters' buyback gains, section 69(2) of the Income-tax Act, 2025 (Finance Act, 2026; as of 22 September 2026)
| Gain | Promoter is a domestic company | Any other promoter |
|---|---|---|
| Short-term capital gains | 2% | 10% |
| Long-term capital gains | 9.5% | 17.5% |
According to the government's explanatory memorandum, the effective result is 30% for promoters and 22% for promoter companies. Other shareholders pay capital gains tax at the normal short-term or long-term rates for their holding period, and Multibagg's Budget 2026 page on the buyback tax change has the full breakdown.
Tender offer vs open-market buyback: how do the routes differ?
Tender offers can reach 25% of capital and run on a record date, while an open-market buyback through the exchange stays under 15%.
Buyback routes under SEBI's buyback regulations, as amended from 1 August 2026 (as of 22 September 2026)
| Feature | Tender offer | Open market through the stock exchange |
|---|---|---|
| Who takes part | Shareholders on the record date | Shareholders placing orders on the exchange |
| Size limit | Up to 25% of paid-up capital and free reserves | Less than 15% of paid-up capital and free reserves |
| Reservation | 15% for small shareholders | No record-date entitlement |
| Timing | Opens within 4 working days of the record date, open 5 working days | Opens within 4 working days of the announcement, closes within 66 working days |
Exchange buybacks have had a stop-start history. SEBI's 2023 amendment tapered their limit and then barred the route from 1 April 2025, before the SEBI amendment of 1 July 2026 brought it back from 1 August 2026 with the 15% cap and the 66-working-day window.
Promoters' shares are also frozen under that amendment. The freeze works at the ISIN level and runs from the board or shareholder resolution until the offer closes, with tendering in a tender offer as the only exception. Our note on SEBI's return of exchange buybacks covers the revived route in more detail.
Why was buyback money treated as dividend income until March 2026?
From 1 October 2024 to 31 March 2026, buyback proceeds were taxed as dividend because the government viewed buybacks and dividends as two ways of distributing reserves. That reasoning is set out in the Finance (No. 2) Bill, 2024 memorandum.
Shareholders were taxed on the full amount received, as dividend at their applicable rate and with no deduction for expenses, and the cost of the shares bought back became a capital loss that could be set off against later capital gains.
The memorandum's own example shows the effect. A shareholder who paid ₹40 each for 100 shares and tendered 20 of them at ₹60 had ₹1,200 taxed as dividend and an ₹800 capital loss. Under the rules in force from 1 April 2026, that same shareholder would instead report a capital gain of ₹400 on those 20 shares.
What does the Companies Act 2013 allow in a buyback?
Section 68 of the Companies Act, 2013 caps a buyback at 25% of paid-up capital and free reserves. A special resolution of shareholders is needed, unless the buyback is 10% or less, in which case the board alone can approve it. For equity shares, that 25% limit is read against total paid-up equity capital in that financial year, and after the buyback the company's debt cannot exceed twice its paid-up capital and free reserves.
Every share bought back must be fully paid, and the articles must authorise the buyback, which has to be completed within one year of the resolution. A one-year cooling-off period applies between the closure of one offer and the next. SEBI's 2026 amendment now points to whatever period the Companies Act prescribes, and it bars any buyback that would breach minimum public shareholding.
How does a shareholder take part in a tender offer?
Shareholders take part by tendering shares through the stock exchange mechanism during the 5-working-day window, based on the entitlement fixed on the record date. That record date appears in the company's public announcement, and the letter of offer goes out electronically within two working days of it. An eligible shareholder can tender even without the tender form.
Acceptance runs in two categories, a reserved category for small shareholders and a general category for everyone else. Holdings valued at up to ₹2 lakh on the record date fall in the reserved category, which has 15% of the offer. The valuation uses the closing price on the exchange with the highest volume. SEBI also clubs together demat accounts whose PAN sequence matches.
Multibagg's corporate actions page lists announced buybacks and their record dates alongside other corporate actions. Our note on Ashapura Intimates' proposed ₹100 crore buyback covers a recent announcement.
Check a company's filings before a buyback record date
A buyback's size, route, record date and any 2026 route change all sit in the company's own filings. Each company page in Multibagg's stocks section brings those filings together with price history and fundamentals. Our guide to tracking corporate actions shows where buybacks sit alongside dividends, splits and rights issues on the exchange calendars.
Disclaimer: This article is for educational and informational purposes only. Multibagg AI is not a SEBI-registered investment adviser or research analyst, and it does not provide investment, financial, legal or tax advice. Nothing here is a recommendation to buy, sell, hold or invest in any security. Market data is shown as of the dates stated and may have changed since. Please consult a SEBI-registered adviser before making any investment decision.
Aaditya Aanand is the founder and CEO of Multibagg AI. An IIT Kanpur alumnus, he has worked across technology and financial markets at Goldman Sachs and American Express. His writing explores investing, markets and AI.