Context:
Indian listed companies have significantly reduced share buybacks in 2025 due to a combination of taxation reforms and SEBI regulatory changes. As of June 26, 2025, only four buyback offers worth â‚ą186 crore have been recorded, compared to 38 buybacks totalling over â‚ą8,000 crore in the previous calendar year.
Key Factors Behind the Decline:
New Taxation Rule (Effective October 1, 2024):
- Earlier Regime: Companies paid a 20% buyback tax on the repurchase amount.
- New Regime: The tax burden has shifted to shareholders, who now must pay capital gains tax on income from buybacks, aligning it with dividend taxation.
- Impact: Shareholders now find buybacks less attractive due to higher post-tax returns on dividends.
What is a Buyback Tax?
Buyback tax is a type of tax imposed on companies that repurchase their own shares from shareholders. Governments typically levy this tax to discourage companies from distributing profits to shareholders through share buybacks instead of paying dividends.
SEBI Regulatory Reforms
- Phasing Out of Open Market Route:
- SEBI has eliminated the open market buyback route starting FY 2025.
- Companies are now allowed to conduct buybacks only through the tender offer route, which is costlier and more restrictive.
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