For more than a year, Indian companies looking to return surplus cash to shareholders had only one real option on the table: the tender offer. That changed on June 19, 2026, when the Securities and Exchange Board of India approved a set of amendments that bring open market buy-backs through the stock exchange route back into the picture, effective August 1, 2026. For anyone who has followed the twists in India’s buy-back regulations over the past few years, this might sound like a simple reversal of an earlier decision. It is not quite that simple, and understanding why requires looking at both the regulatory history and the tax reforms that made this return possible.

The Regulatory Pivot

This history comes down to two things: why the earlier version of the route ran into trouble, and how the new one has been built differently.

Two Structural Problems

The open market route was not banned overnight. SEBI phased it out in stages across 2022 to 2025, cutting the permissible limits step by step and squeezing the completion window each time, until the route stopped being available altogether from April 1, 2025. The reasoning at the time centred on two problems. First, purchases on the exchange were matched through a price time priority system, which meant institutional and algorithmic traders could often out-compete ordinary retail shareholders trying to sell into the buy-back. 

Second, there was a tax mismatch: companies bore the buy-back tax burden while the shareholders whose shares actually got purchased could walk away with a favourable tax outcome that was unavailable to everyone else. Put together, these two issues made the mechanism feel uneven, even if it offered useful flexibility to corporate treasuries.

A Calibrated Comeback

So when SEBI brought the route back this June, it did so as a recalibrated version of the old mechanism rather than a straightforward restoration. The new framework carries its own set of guardrails, and those guardrails are really the story here.

The Macroeconomic Perspective

Two things explain why this reintroduction happened now: the tax overhaul sitting behind it, and what the change signals about where India’s markets are heading.

Aligning Tax and Market Mechanics

The clearest reason this reintroduction became possible at all is the change in how buy-back proceeds are taxed. Under the earlier regime, the company paid a buy-back tax while shareholders received their proceeds largely free of further tax liability. That arrangement is gone. Starting October 1, 2024, buy-back consideration came to be treated as a deemed dividend in the hands of shareholders. Then, from April 1, 2026, the Income Tax Act, 2025, as amended by the Finance Act, 2026, took the framework a step further and began taxing buy-back proceeds as capital gains for the shareholder instead. Long-term holdings attract a 12.5% rate, short-term holdings a flat 20%, and promoter shareholders carry an additional surcharge on top, designed to stop buy-backs from being used as a way around dividend taxation.

A Step Toward Global Standards

What this means at a macro level is that selling shares into a buy-back is now taxed on roughly the same footing as selling shares in the ordinary secondary market. That parity removes the original objection to the stock exchange route. It also nudges India’s buy-back framework closer to how open market repurchases work in jurisdictions like the United States and the United Kingdom, where companies routinely use the secondary market itself as the venue for capital return rather than relying on a separate, structured offer process. For companies weighing whether to hold cash for expansion or return it to shareholders, having a flexible, market-priced channel available again gives boards a genuine option rather than a binary choice between a rigid tender offer and doing nothing.

Impact on Corporate Balance Sheets

At the level of an individual company, the new rules impose real discipline. Buy-backs through the stock exchange route must now be completed within 66 working days of opening, and at least 40% of the earmarked funds must be deployed within the first half of that period, with 75% utilised by the end. This closes off the old habit of announcing a buy-back mainly for the signalling value and then executing only a token portion of it.

At the same time, SEBI has made the appointment of a merchant banker optional. When a company chooses not to appoint one, the responsibilities that a merchant banker would normally handle shift to the company itself, its compliance officer, statutory auditor, secretarial auditor and the stock exchanges. For smaller or more frequent buy-backs, this can meaningfully reduce transaction costs, though it also means internal governance and documentation need to be tighter than before.

Sectoral Impact: Which Industries Will Use the Route?

Which companies are likely to use this route most actively? Businesses sitting on healthy free reserves with limited need for heavy capital expenditure, such as many technology and established consumer companies, are natural candidates, since they can use market purchases to manage return on equity without locking up cash in a fixed-price tender process. Capital-intensive sectors like infrastructure or manufacturing, which tend to need cash for physical expansion, are less likely to lean on this mechanism as heavily.

Market Impact: Liquidity and Price Discovery

From a market functioning standpoint, an open market buy-back behaves differently from a tender offer. Instead of pulling liquidity out through one structured window, it stays present on the order book across the whole 66-day period. That steady, ongoing buying can soak up some of the selling pressure when broader sentiment turns weak, lending the stock a measure of support without interrupting how it normally trades. 

And because purchases go through the regular trading screens now, with no separate buy-back window and no need to flag the company as the buyer, price discovery is not really disturbed.

Governance Safeguards Worth Noting

None of this flexibility comes without checks. Promoters and their associates remain barred from participating in open market buy-backs, and their holdings are frozen at the ISIN level for the entire duration of the buy-back period, which prevents any inadvertent dealing. 

SEBI has also made clear that buy-backs cannot be used in a way that breaches minimum public shareholding norms, and the interval required between two buy-backs has been aligned with the Companies Act, 2013, so companies planning successive rounds of capital return are not caught between two different regulatory timelines.

Tender Offer or Open Market: A Board’s Choice

Boards now have a genuine decision to make rather than a default path. A tender offer still offers certainty of a fixed price and a defined timeline, along with the reserved participation that benefits small shareholders. The open market route trades that certainty for flexibility, allowing a company to buy gradually at prevailing prices and adjust its pace of purchase to market conditions, provided it hits the mandated utilisation milestones along the way.

A Calibrated Return, Not a Simple Reversal

Taken together, these changes hand companies back a genuinely useful tool, while closing off the ways it was misused before. The execution timeline forces real commitment rather than announcement for its own sake, the promoter restrictions close off governance concerns, and the tax alignment removes the unfairness that justified the original ban. For Indian capital markets, that combination suggests a more mature and better calibrated version of a mechanism that boards have wanted back for some time.

Tired of guessing stocks to trade in daily? Tradz by EquityPandit empowers you with powerful tools like daily stock scans for Intraday, Swing & Investing, Market Predictions and much more. Download the Tradz by EquityPandit app today and take control of your investments!