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To apply for a buyback of share in India, investors must hold shares on the record date announced by the company and tender them through their demat account during the offer period. Following the SEBI amendments effective April 2025, the process has become more streamlined, focusing on the Tender Offer route to ensure equitable participation for all shareholders.
Companies usually announce buybacks to return excess cash, improve financial ratios, or signal confidence in their business. For investors, buybacks can offer an opportunity to exit at a fixed price or continue holding shares with potentially improved earnings per share.
Key Takeaways
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Buybacks in India are conducted through the tender offer or book-building route.
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The stock exchange open market route was discontinued effective April 1, 2025.
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Investors can apply for share buyback through their demat account if they hold shares on the record date (purchase at least T+1 day prior under current settlement cycle).
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15% of the buyback offer size is reserved for small shareholders holding shares worth up to ₹2 lakh as on the record date.
What is Buyback of Shares?
It is the process wherein a corporation repurchases its own shares from its shareholders. This way, the company that had earlier issued shares pays some of its shareholders and absorbs that part of ownership that several investors had before.
A company can do so for a variety of reasons. Some of them could be a consolidation of ownership, boosting financial metrics, or addressing undervaluation.
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When a company buys back shares, the process may signal financial strength and efficient capital management, which can influence investor perception.
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For many companies, share buyback means reducing the risk of acquisitions or takeovers by another party.
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Some companies opt to buy back shares so that the value of their equity goes back up.
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Many companies offer stock options to their employees. Such companies opt for buyback of shares so as to ensure that a certain level of outstanding shares is maintained.
Types of buyback of shares OR Methods of Buyback of Shares
The Methods of Buyback of Shares refer to the different ways companies repurchase their own shares from shareholders. These methods help companies return excess cash and manage their shareholding structure effectively. With the discontinuation of the Open Market route, companies now use the following methods:
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Fixed Price Tender Offer: The company sets a fixed price (usually at a premium to the market) and invites shareholders to sell. This is the most common method.
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Book-Building Tender Offer: The company provides a price range, and the final buyback price is determined based on shareholder bids.
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Dutch Auction: A variation where shareholders specify the price at which they are willing to sell within a range; the company then picks the lowest price that allows them to buy the desired number of shares.
Read More: What is a Shareholder?
Share Buyback Process
The share buyback process involves a series of steps through which a company repurchases its own shares from shareholders, following regulatory approval and disclosure requirements.
Step 1: Board approval
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The company’s board of directors reviews the proposal and approves the share buyback.
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This approval includes key details such as the buyback size, method, price range, and timeline.
Step 2: Announcement
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After approval, the company makes a public announcement of the buyback offer.
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The announcement includes important information such as the record date, buyback price, eligibility criteria, and the method of buyback.
Step 3: Execution
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India follows a T+1 rolling settlement cycle. Investors must purchase shares at least 1 trading day before the ex-date so that the shares are credited to their demat account before the record date. Only shareholders holding shares as on the record date are eligible to participate.
Step 4: Payments and settlement
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If shares are accepted: The accepted shares are debited from the shareholder’s demat account, and payment is credited to the registered bank account within the specified settlement period.
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If shares are not accepted: The unaccepted shares remain in the shareholder’s demat account and can be held or sold in the market.
Step 5: Reporting and completion
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After completing the buyback, the company submits final details to the regulators and stock exchanges.
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This includes the total number of shares bought back, final acceptance ratio, and confirmation of buyback completion.
Share Buyback Benefits
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Higher earnings per share (EPS): The buyback of shares reduces the total number of outstanding shares, which can increase earnings per share if profits remain stable.
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Improved shareholder value: By reducing available shares in the market, buybacks can strengthen ownership value and reflect the company’s confidence in its financial position.
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Boosts investor confidence: Indicates the company’s belief in its future growth and financial strength.
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Efficient use of excess cash: Allows the company to return surplus funds to shareholders instead of holding idle reserves.
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Reduces takeover risk: Lowers the number of publicly available shares, helping maintain ownership control.
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Offers exit opportunity: Shareholders can sell their shares at the buyback price during tender offers.
Dividends: Implications due to buyback
Dividends and buybacks of shares are two different ways companies return value to shareholders, but they work differently. Dividends are paid to all eligible shareholders on fixed dates. Every shareholder receives the payment, resulting in a mandatory cash outflow for the company.
In contrast, a buyback of shares gives flexibility to both the company and investors. Shareholders who do not participate continue holding their shares. This gives both the company and investors flexibility in managing capital and ownership.
From a taxation perspective, effective October 1, 2024, the tax treatment of buybacks was revised under the Finance Act, 2024. The buyback tax payable by companies was removed, and buyback proceeds are now treated as dividend income in the hands of shareholders and taxed at their applicable income tax slab rates.
The original cost of acquisition of shares is allowed as a capital loss, which can be set off or carried forward as per capital gains tax provisions. This differs from the earlier framework, where companies paid buyback tax, and shareholders received the proceeds largely tax-free. Investors should consider their applicable tax slab before deciding to participate in a buyback.
Buybacks also reduce the total number of outstanding shares. This can increase earnings per share (EPS) and ownership percentage for shareholders who do not participate. As a result, buybacks can improve shareholder value while offering investors the option to exit at the announced buyback price.
Difference Between Dividend and Share Buyback
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Nature: Dividends are cash payments made to shareholders, while a share buyback involves the company repurchasing its own shares.
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Taxation: Dividend income is taxed based on applicable income tax rules, whereas buybacks are taxed as dividend income, with capital loss treatment allowed for the cost of acquisition.
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Frequency: Dividends may be paid regularly, while buybacks are announced occasionally based on the company’s decision.
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Impact: Dividends do not reduce the number of shares, whereas buybacks decrease outstanding shares, which can affect earnings per share.
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Choice: Dividends are paid automatically to all eligible shareholders, while buybacks allow shareholders to choose whether to participate.
Factors to keep in mind when you think of acceding to a buyback
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The buyback price is one of the most important factors to consider. Investors should compare the buyback price with the current market price to evaluate whether the share buyback offer provides fair value.
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The premium offered refers to the difference between the buyback price and the prevailing market price. A higher premium may make the offer more attractive for shareholders considering participation.
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The size of the buyback indicates how much capital the company plans to return to shareholders. A larger buyback may reflect stronger financial reserves and confidence in the company’s position.
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Investors should carefully track important dates such as the record date, offer opening and closing period, and settlement timeline to ensure eligibility.
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It is also important to review the company’s financial performance, profitability, and future growth potential before deciding whether to participate in the share buyback.
How to Apply for Share Buyback?
To apply for a share buyback, investors must first check whether they are eligible based on the record date announced by the company. Only shareholders who hold shares on or before the record date can participate in the buyback offer.
Once the buyback opens, investors can tender their shares through their demat and trading account. The buyback option usually appears in the corporate actions or tender offer section. Investors must select the buyback offer and enter the number of shares they wish to tender.
The tender form displays important details such as the number of shares held, eligible shares, and the number of shares applied for the share buyback. After submission, the shares are blocked in the demat account until the process is completed.
Based on the acceptance ratio, the company accepts eligible shares and credits the payment to the investor’s bank account. Any unaccepted shares are released back to the demat account.
The New Taxation Rules
The Finance Act 2024 fundamentally changed how you profit from a buyback:
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Old Rule: Company paid the tax; shareholders got the money tax-free.
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Current Rule (Post Oct 1, 2024): The entire buyback proceed is treated as Dividend Income. It is added to your total income and taxed at your highest income tax slab (e.g., 10%, 20%, or 30%).
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Capital Loss Benefit: The original price you paid for the shares is treated as a Capital Loss. You can use this loss to offset other Capital Gains (like from selling other stocks or gold), which can help reduce your overall tax liability.
Conclusion
The buyback of shares is a corporate action through which companies repurchase their own shares from shareholders to return excess cash and improve ownership value. It helps reduce the number of outstanding shares and may improve financial ratios such as earnings per share.
For investors, a share buyback provides an option to exit at the announced price or continue holding shares with a higher ownership percentage. However, investors should carefully review the buyback price, eligibility, and company fundamentals before making a decision.
