SEBI Buy-Back of Securities Amendment Regulations 2026 Reintroduce Open Market Buyback Through Stock Exchanges

The Securities and Exchange Board of India (SEBI) has notified the SEBI (Buy-Back of Securities) (Amendment) Regulations, 2026 vide Notification No. SEBI/LAD-NRO/GN/2026/306, dated July 1, 2026, published in the Gazette of India (Part III, Section 4). These amendments, effective from August 1, 2026, mark the reintroduction of the open market buyback route through stock exchanges after its complete phase-out in April 2025. The amendment introduces a comprehensive regulatory framework with significant safeguards, including a 15% cap on stock exchange buybacks, a 66-working-day execution window, ISIN-level freeze on promoter shareholding, and discretionary appointment of merchant bankers.

---

Background: The Phase-Out and Reintroduction

The open market buyback route through stock exchanges has had a turbulent regulatory history in India. A key feature of SEBI's 2023 amendments to the Buy-Back of Securities Regulations, 2018, was the gradual phasing out of this route, culminating in its complete elimination effective April 2025. The phase-out was driven by concerns about market manipulation, lack of transparency in execution, and the perceived inequity of the mechanism, which often benefited promoters at the expense of small shareholders. However, a SEBI board meeting held in March 2026 recommended the reintroduction of this route after taking into account market feedback and developments in the tax framework. The regulator's approach to market protection continues to evolve, as reflected in the Supreme Court's recent stay on a ruling declaring NSE a public authority under the RTI Act, which involves fundamental questions about transparency in market infrastructure institutions.

Key Provisions of the Amendment

The 2026 amendment introduces several critical provisions governing buybacks through the stock exchange route. First, a buyback through the stock exchange shall be limited to less than 15% of the aggregate of the company's paid-up capital and free reserves, computed on the basis of both standalone and consolidated financial statements. Any buyback exceeding this threshold must be undertaken through the tender offer route. Second, the execution timeline is fixed at 66 working days from the opening date of the buyback. The company must utilise at least 40% of the proposed buyback amount during the first half of this period, ensuring that the buyback is not merely announced but meaningfully executed.

Third, the appointment of a merchant banker has been made discretionary. Where a company chooses not to appoint a merchant banker, the responsibilities traditionally discharged by the merchant banker are redistributed among the company's officers, compliance officer, statutory auditor, and secretarial auditor. This provision is intended to reduce transaction costs, particularly for smaller buybacks. Companies weighing their corporate structure options, whether considering a conversion from private to public company status or planning a buyback, must now factor in this revised regulatory framework. Investors who believe their rights have been violated during a buyback process can file a complaint with SEBI through the SCORES portal.

Safeguards and Compliance Requirements

The amendment introduces robust safeguards to address concerns that led to the original phase-out. An ISIN-level freeze on promoter shareholding is mandated during the buyback period, preventing promoters from increasing their stake while the company purchases shares from the open market. Companies cannot undertake a buyback if it would result in a breach of the minimum public shareholding requirement. These protections are significant in the context of corporate governance and relate to broader regulatory enforcement. The Supreme Court's recent ruling that ED cannot freeze bank accounts under PMLA on mere suspicion illustrates the judiciary's insistence on procedural safeguards in financial regulation.

The amendment also mandates shareholder intimation requirements, ensuring that all shareholders are informed about the buyback terms and progress. The company must provide periodic updates to the stock exchanges regarding the quantum of shares bought back, the average price paid, and the remaining buyback entitlement. Non-compliance with these provisions may attract enforcement action from SEBI. Businesses must ensure they are in full regulatory compliance, including maintaining current GST registration, to avoid compounding legal issues during corporate actions such as buybacks.

Tax Implications Under the Finance Act 2026

The reintroduction of open market buybacks must be understood alongside the revised tax framework. The Income Tax Act, 2025, as amended by the Finance Act, 2026, has rationalised the tax position with effect from April 1, 2026, by taxing buyback consideration as capital gains in the hands of shareholders rather than as dividend distribution. This aligns the tax treatment of buybacks with that of ordinary share sales on the exchange, removing a significant tax advantage that had previously made buybacks an attractive capital return mechanism. The Finance Act, 2026, also introduced an additional tax component for promoter shareholders, adding a layer of cost that promoters must consider when evaluating buyback proposals.

These tax changes significantly alter the economics of buybacks. Under the earlier regime, buybacks were tax-efficient because the company paid the buyback distribution tax and the consideration was tax-free in the hands of shareholders. The new regime eliminates this differential treatment. Companies and their shareholders, including those involved in entities structured as partnership firms or other business formations, must recalibrate their capital return strategies in light of this changed tax landscape. Financial disputes arising from such transactions, including those involving cheque dishonour under Section 138 of the Negotiable Instruments Act, remain subject to separate regulatory and judicial processes.

Implications for Companies and Investors

The SEBI Buy-Back Amendment Regulations 2026 represent a carefully calibrated regulatory response. By reintroducing the stock exchange route with enhanced safeguards, SEBI has acknowledged the legitimate need for this capital return mechanism while addressing the transparency and governance concerns that motivated the original phase-out. The 15% cap ensures that larger buybacks continue to go through the more transparent tender offer route. The 66-day execution window and 40% first-half utilisation requirement prevent companies from making hollow buyback announcements. The ISIN-level freeze on promoter shareholding prevents abuse. Companies considering a buyback should also ensure they meet the requirements for filing a petition for winding up are not applicable to their situation, and that their corporate governance framework is robust. These amendments underscore SEBI's commitment to maintaining robust market integrity while providing companies with flexible capital return mechanisms. These amendments take effect from August 1, 2026, and all buyback offers initiated on or after this date must comply with the new framework.