SEBI Proposes Open Market Buyback Return After Tax Changes

In a consultation paper, the market regulator suggested that companies should once again be allowed to repurchase their shares directly from the secondary market as an additional option under existing buyback rules.

This method had been discontinued earlier due to tax-related concerns.

SEBI said the recent amendments in the Income Tax Act have removed the earlier imbalance in taxation.

Under the revised rules, buyback proceeds will now be taxed as capital gains in the hands of shareholders.

This aligns the tax treatment of buybacks with regular share market transactions, making it fair for all investors.

The regulator noted that shifting the tax burden from companies to shareholders has made selling shares in the open market similar to participating in a buyback through the stock exchange.

It added that this method is widely used in global markets as it supports continuous price discovery and improves liquidity.

SEBI also said that reintroducing open market buybacks would give companies more flexibility in managing their capital while ensuring equal treatment of public shareholders from a tax perspective.

However, it added that the move would be subject to appropriate regulations and compliance mechanisms.

The proposal comes after industry bodies such as the Federation of Indian Chambers of Commerce and Industry and the Association of Investment Bankers of India raised the issue with the regulator.

These organisations argued that open market buybacks are more efficient and are commonly used worldwide, helping companies stabilise their share prices.

If implemented, the move could mark a key shift in India's capital market regulations, offering companies another route to return cash to shareholders while improving overall market efficiency.

- IANS