The Securities and Exchange Board of India (SEBI) has suggested reintroducing open market share buybacks through stock exchanges. This move follows recent tax framework changes and aims to provide companies with an additional option under existing buyback rules. The method of repurchasing shares directly from the secondary market had been discontinued previously due to tax-related concerns.
SEBI highlighted that recent amendments in the Income Tax Act have addressed the previous taxation imbalance. With the revised rules, buyback proceeds will now be taxed as capital gains in the hands of shareholders. This adjustment aligns the tax treatment of buybacks with regular share market transactions, ensuring fairness for all investors.
The regulator emphasized that shifting the tax burden from companies to shareholders makes selling shares in the open market akin to participating in a buyback through the stock exchange. This approach, commonly used in global markets, supports continuous price discovery and enhances liquidity.
Reintroducing open market buybacks, according to SEBI, would offer companies greater flexibility in capital management while maintaining equal treatment of public shareholders from a tax perspective. However, the proposal would be subject to appropriate regulations and compliance mechanisms.
Industry bodies such as the Federation of Indian Chambers of Commerce and Industry and the Association of Investment Bankers of India have advocated for open market buybacks. They argue that this method, widely employed globally, helps companies stabilize their share prices efficiently. If implemented, this initiative could signify a significant change in India’s capital market regulations, providing companies with an additional avenue to distribute cash to shareholders and enhancing overall market efficiency.
