SEBI Proposes Bringing Back Open Market Buybacks After Resolving Section 115QA Tax Inequity

(INDIA) — The Securities and Exchange Board of India has proposed reintroducing open market share buybacks through stock exchanges, reopening a route that was discontinued after tax and participation concerns, and said tax changes now allow the method to return under the SEBI (Buy-Back of Securities) Regulations, 2018.

SEBI released a consultation paper on April 2, 2026, seeking public comments by April 23, 2026. The proposal would add open market buybacks through exchanges as another option alongside existing methods, with safeguards including a separate buyback window, price and volume limits, restrictions on promoter participation and enhanced disclosures.

The move marks a reversal after SEBI fully discontinued open market buybacks via exchanges from April 1, 2025. At the time, the regulator cited unequal shareholder participation and tax distortions that gave an advantage to those who sold into the buyback while leaving others outside it.

Those concerns were tied to the tax treatment under Section 115QA of the Income Tax Act, 1961. Under that framework, companies paid buyback tax, while shareholders who participated received tax-free proceeds, creating what SEBI viewed as an uneven outcome for public shareholders.

The tax position then changed in stages. From October 1, 2024, buyback proceeds became taxable as deemed dividends in shareholders’ hands.

A further change took effect from April 1, 2026. Buyback taxation shifted to capital gains based on actual gains, aligning the treatment with normal market sales.

SEBI said those changes removed the tax distortions that had undercut the case for open market buybacks. The regulator said the new framework eliminates “tax-induced inequity among public shareholders,” because buybacks would now match regular trades conducted through order-driven price-time matching and offer equal opportunity.

That tax alignment sits at the center of the proposal. SEBI’s case is that once buyback proceeds are taxed in the same way as ordinary market transactions, one of the main objections to open market repurchases no longer applies.

The regulator also linked the proposal to the structure of exchange trading itself. In an order-driven market with price-time matching, shareholders can participate through the normal market process rather than through a mechanism that may favour some holders over others.

Before SEBI closed the route, open market buybacks had drawn criticism on two fronts. One involved unequal exits, because not every shareholder could participate in the same way. The other involved the tax advantage available to those who did participate.

Industry bodies have since pushed for a revival. The Federation of Indian Chambers of Commerce and Industry and the Association of Investment Bankers of India supported bringing back the method, saying it could improve efficiency, help stabilize markets, prevent panic selling and support long-term shareholder value.

SEBI’s proposal reflects that view, but ties any return to tighter operating conditions. The regulator did not present the method as an unrestricted revival. Instead, it proposed a framework designed to place open market buybacks alongside other buyback routes under uniform conditions and compliance requirements.

A separate buyback window is one of the safeguards in the consultation paper. That would create a distinct trading channel for these purchases rather than folding them into ordinary market activity without a dedicated process.

Price and volume limits form another part of the proposal. Those controls would govern how companies execute the repurchases in the secondary market and are meant to place boundaries on how the process operates on exchanges.

SEBI also proposed restrictions on promoter participation. That measure addresses a recurring sensitivity in buyback design, particularly when regulators seek to ensure that the process does not tilt toward controlling shareholders.

Enhanced disclosures would add another layer of oversight. For regulators and market participants, disclosure rules are a core part of the plan to monitor compliance if the method returns.

Together, those conditions show how SEBI is trying to balance flexibility for listed companies with market supervision. The regulator’s emphasis is not only on reopening a mechanism but on doing so after what it sees as a correction in the tax treatment.

The proposal also places open market repurchases within the broader menu of buyback methods already available under the 2018 regulations. Companies would be able to repurchase shares from the secondary market through stock exchanges in addition to existing methods, rather than replacing one route with another.

That could matter for corporate treasury decisions. A company that wants to return capital or support its share price would have another option to consider, subject to the same regulatory framework and the extra safeguards laid out in the consultation paper.

For shareholders, the proposal turns on two stated benefits: equitable treatment and liquidity. SEBI’s argument is that once taxation matches ordinary market sales, public shareholders stand on more even ground, while exchange-based purchases can offer a market route for selling shares.

The consultation paper also links the change to broader market behaviour. Supporters of open market buybacks, including FICCI and the Association of Investment Bankers of India, said the method can contribute to market stabilization and help prevent panic selling.

Those arguments are not unique to India. SEBI said open market buybacks are a common practice globally and are favored worldwide for efficiency, market stabilization, panic selling prevention and long-term shareholder value.

That global backdrop matters because the regulator is not proposing a new instrument. It is proposing the return of a method that is already widely used elsewhere, while arguing that India’s tax framework now better supports it.

The sequence of tax changes helps explain why SEBI acted now rather than earlier. When buyback proceeds became taxable as deemed dividends from October 1, 2024, the earlier model had already started to shift away from the old Section 115QA structure.

The April 1, 2026 change went further. By moving to capital gains taxation based on actual gains, the system aligned buybacks with normal market sales, while promoter shareholders faced additional tax and surcharge not applicable to non-promoters, along with measures against arbitrage with dividends.

That distinction between promoters and non-promoters is part of the new balance SEBI is relying on. The regulator’s position is that once the tax treatment reflects actual gains and closes off dividend arbitrage concerns, the earlier inequity among public shareholders no longer defines the method.

SEBI’s proposal therefore combines tax policy and market regulation in a single case for change. Tax reform removed the distortion, in the regulator’s view, and market safeguards would govern how companies use the route if it returns.

The consultation timeline is short. Comments are due by April 23, 2026, giving companies, investors, intermediaries and industry groups a narrow window to respond to the paper released on April 2, 2026.

What happens next depends on that consultation process. SEBI has framed the paper as a proposal and indicated that implementation would follow after consultation.

The stakes are different for each group affected. Companies could gain another way to conduct buybacks through exchanges. Shareholders could see a method that SEBI says now offers more equitable treatment after the tax shift. Regulators and the market would have to rely on disclosures, monitoring and the proposed restrictions to enforce compliance.

For SEBI, the proposal is also a test of whether a regulatory tool once dropped because of unequal participation and tax distortions can return under a new tax regime without reproducing the same problems. The regulator’s answer, for now, rests on the April 1, 2026 shift away from Section 115QA and on the safeguards it wants in place before open market buyback activity resumes.