Tax, securities regulations make buybacks unattractive for shareholders

The Hindu

5 hours ago

A combination of taxation and regulatory changes have led to Indian listed companies losing interest in buyback of shares.
According to PrimeDatabase, there were only four share buy back offers, amounting to a total of ₹186 crore as of June 26, 2025 . Last calendar year, this amounted to 38 offers with a total value of over ₹8,000 crore.
'As the data show, buybacks have completely dried up ever since the taxation rule change as per which has shifted the burden from companies to shareholders with effect from October 1, 2024 to bring it on a par with dividends,' said Pranav Haldea, MD of Prime Database Group. 'Buybacks have been negligible despite the bearish market which we had from October till March, during which buybacks typically thrive,' he said.
'Companies who might have wanted to buyback shares may have already completed it in September 2024 after the Budget announcement,' Mr. Haldea added.
'Companies which were considering a buyback may have accelerated their plans to launch before the new taxation rules came into effect,' he said.
The Union government had announced that with effect from October 2024, income from buyback of shares would be taxed on a par with income from dividend. Earlier, companies were paying a 20% buyback tax. If the income that shareholders receive is considered as dividend, then shareholders will have to pay capital gains.
This, according to experts, may have made buybacks less attractive for shareholders and hence may not have led to such a demand even during a bear market.
Besides the North Block regulation, the markets watchdog might have also contributed to the trend. 'The reduction is primarily a consequence of SEBI's regulatory changes. SEBI had been progressively reducing the option for companies to buy back their shares through the open market, and starting this FY, it has eliminated. Companies are now restricted to undertaking a buyback only through the tender offer route,' said Arindam Ghosh, partner at Khaitan & Co.
Merchant bankers, who were earlier advising companies on buyback offers, may have now lost their stream of income.
'It is possible that merchant bankers previously active in share buyback deals are facing challenges, given the recent regulatory changes by SEBI phasing out the open market buyback route. They may need to shift their focus to other areas where they are mandatorily required to be involved as an intermediary,' Mr. Ghosh said.