If you hold shares in a company that announces a buyback after August 1, 2026, the process will look different from any buyback you've seen before. SEBI has reintroduced open-market buybacks — companies repurchasing their own shares directly through the stock exchange, in the same way you'd buy or sell any stock — replacing a mechanism that was withdrawn back in 2023 over concerns about price manipulation.
This isn't a minor procedural tweak. It changes how a buyback affects the stock price, how long the process takes, and — separately — how much tax you owe on the gain. Here's what the rule actually says, without the jargon.
What Changed: Tender Offer vs. Open-Market Buyback
Since 2023, companies buying back shares had to use a tender offer — you, as a shareholder, had to actively offer your shares back to the company at a fixed price, usually a premium to the market price, within a specific window.
From August 1, 2026, companies can instead run an open-market buyback through the stock exchange — the company (via its broker) simply buys shares in the regular market over time, the same way any other buyer would, without you needing to submit anything.
The practical difference for you:
| Tender Offer | Open-Market Buyback | |
|---|---|---|
| Do you need to act? | Yes — submit shares to participate | No — happens passively in the market |
| Price | Fixed, usually at a premium | Market price, moves during execution |
| Certainty of participation | Pro-rata acceptance, may not get full quantity accepted | No direct participation — you either sell at prevailing price or hold |
| Timeline visibility | Fixed dates announced upfront | Spread over weeks, executed gradually |
With an open-market buyback, you don't "opt in." The company is simply a large, disclosed buyer in the market. If you want to benefit from the buyback, you sell into the market at the prevailing price while the company is actively buying — the same way you'd sell to any other buyer.
The Exact Caps and Timelines
SEBI's amended rules specify hard limits on how a company can execute an open-market buyback:
1. Size cap The buyback through the open market cannot exceed 15% of the company's paid-up capital and free reserves, calculated on both a standalone and consolidated basis. A company cannot use this route to buy back a large chunk of its equity in one go.
2. Opening timeline The company must open the buyback within 4 working days of the public announcement. It cannot sit on an announcement indefinitely before starting to execute.
3. Completion timeline The entire buyback must be completed within 66 working days from the date it opens. This is the headline change — a hard, defined execution window rather than an open-ended process.
4. The 40% front-loading rule At least 40% of the amount earmarked for the buyback must be utilised in the first half of that 66-working-day window. A company cannot announce a buyback and then delay most of the actual purchasing to the very end — which would have let it react to short-term price movements rather than executing what it promised.
5. Merchant banker requirement — now optional Previously, companies needed to mandatorily appoint a merchant banker to manage the buyback. Under the new rules, this is now discretionary. Smaller companies may skip this step, which could mean less independent oversight of the execution — something to watch for if you're evaluating a buyback from a smaller-cap company.
Why the 66-Day Cap and 40% Rule Actually Matter to You
These aren't arbitrary numbers — they exist because of what happened before 2023, when open-market buybacks were withdrawn. Companies could stretch buybacks over many months, buying small amounts sporadically, which made it easy to use the buyback announcement itself as a price-supporting signal without necessarily executing much of it. SEBI's stated concern at the time was potential market manipulation.
The 66-working-day cap and the 40% front-loading rule are designed to prevent that. A company now has to show real, front-loaded buying activity within a defined window — not just an open-ended promise.
What this means practically: if a company announces an open-market buyback, you can expect visible buying pressure on the stock relatively early in the window, not spread thin over many months. That's useful information if you're deciding whether to sell into the buyback or hold.
The Tax Change You Need to Know Separately
This is where many investors get confused, because the tax rules changed on a different timeline from the buyback execution rules — and the two get conflated in most news coverage.
Old rule (2024–March 2026): Buyback proceeds were taxed like a dividend — the entire amount you received was added to your income and taxed at your slab rate, which could be as high as 42.7% for the highest bracket. Your original cost of acquisition was, in some structures, treated as a capital loss you could offset elsewhere, but the headline tax hit on the proceeds was steep.
New rule (effective April 1, 2026): Buyback proceeds are now taxed as ordinary capital gains — you pay tax only on the actual profit (buyback price minus your cost of acquisition), not on the full amount received.
| Holding Period | Tax Rate (Listed Shares) |
|---|---|
| Long-term (held 12+ months) | 12.5% on gains above ₹1.25L in the financial year |
| Short-term (held under 12 months) | 20% |
A worked example: You bought 100 shares at ₹500 each (₹50,000 total) three years ago. The company buys back your shares at ₹800 each (₹80,000 total). Your gain is ₹30,000. Since you've held the shares over 12 months, this is a long-term capital gain — taxed at 12.5% (after accounting for the ₹1.25L annual exemption threshold across all your equity LTCG for the year). Under the old rule, the entire ₹80,000 could have been added to your income and taxed at your slab rate.
This is a materially better outcome for most retail shareholders than the 2024 regime — buybacks are now taxed in line with any other equity sale, rather than penalised as a distribution.
One exception: Promoters face an additional tax layer on buyback gains — an effective 22% for corporate promoters and 30% for others — specifically designed to prevent companies from using buybacks as a tax-efficient way to funnel money back to promoter shareholders. This doesn't affect retail shareholders.
What to Actually Do When a Company Announces a Buyback
1. Check whether it's a tender offer or an open-market buyback. The company's public announcement will specify the mechanism. If it's an open-market buyback, there's no form to fill or shares to tender — you decide independently whether to sell in the market during the window.
2. Don't assume the price will rise indefinitely. The 40% front-loading rule means buying pressure is more concentrated early in the window — it doesn't guarantee a sustained price increase for the full 66 days.
3. Calculate your actual tax liability before deciding to sell. Under the new rules, your tax bill depends on your cost of acquisition and holding period — not a flat rate. Work this out before treating a buyback price as your "real" return.
4. Watch the size cap. If a company's open-market buyback is capped at 15% of paid-up capital and free reserves, the price impact on a large-cap stock will typically be smaller than on a small-cap with lower market depth. Factor in the company's size when judging how much the buyback might move the price.
5. If merchant banker oversight matters to you, check the buyback filing. Since appointing one is now optional, it's worth checking the buyback announcement to see whether the company has done so — particularly for smaller, less-established companies.
The Bottom Line
The August 1, 2026 changes give companies a faster, more flexible way to return capital to shareholders — but the hard caps (66 working days, 40% front-loading, 15% size limit) exist specifically to prevent the abuse that led to open-market buybacks being withdrawn in the first place.
For you as a shareholder, the mechanics of participation have changed — you're no longer tendering shares, you're deciding whether to sell into a defined, time-boxed buying window. And the tax treatment, following the April 2026 changes, now works meaningfully in your favour compared to the 2024 rules.
If you're holding shares in a company that has announced or is likely to announce a buyback, it's worth running the actual numbers — cost basis, holding period, and expected tax — before deciding whether to sell or hold.
This article is for educational purposes only and does not constitute investment advice. Please consult a qualified tax professional for advice specific to your situation. Mutual fund investments are subject to market risks. Please read all scheme-related documents carefully before investing.