“In light of the amendments in the taxation framework introduced by the Income Tax Act, the then concerns for the discontinuation of buy-back of shares or other specified securities from open market through stock exchange, i.e. tax-induced inequity among public shareholders, now stands addressed,” Sebi said in a consultation paper on Thursday.
Under the new buyback taxation framework, public shareholders will be taxed on their actual capital gains when shares are tendered in a buyback, similar to a normal market sale. “Consequently, the differential tax advantage that existed earlier between shareholders who were able to participate in the buy-back and those who were not, would not exist any longer,” Sebi said.
Buybacks through the stock exchange are conducted via an order-driven mechanism, where execution is determined by price-time matching and all public shareholders have an equal opportunity to participate under uniform conditions. The shift in tax liability — from companies to participating shareholders — has effectively aligned buyback transactions with normal market trades, the regulator said, while seeking public comments by April 23.
The proposed framework retains existing safeguards, including a separate buyback window on exchanges, limits on price and volume, restrictions on promoter participation, and enhanced disclosure requirements.