Buyback of Shares in India 2026: Meaning, Procedure, Tax & Section 68

Key Takeaways

• A buyback of shares occurs when a company repurchases its own shares from existing shareholders and cancels them, returning surplus capital. It is governed by Sections 68, 69, and 70 of the Companies Act, 2013. 
• A company can fund a buyback only from free reserves, the securities premium account, or proceeds of a prior share issue, never from borrowed funds.
• A buyback cannot exceed 25% of paid-up capital and free reserves in a financial year. Up to 10% needs a Board Resolution, while beyond that requires a Special Resolution.
• From April 2025, SEBI discontinued the open-market buyback route. Listed companies can now buy back shares only through the tender offer route.
• Effective April 1, 2026, shareholders pay capital gains tax on actual gains. LTCG is 12.5%, and STCG is 20%, replacing the deemed dividend regime that applied from October 2024.
• Mandatory cooling-off period: No fresh buyback offer can be made within 1 year from the closure of the preceding buyback. The company also cannot issue new shares of the same kind for 6 months post-buyback (excluding bonus shares, ESOPs, and conversions).

What is the buyback of Shares?

A buyback of shares occurs when a company purchases its own shares from existing shareholders, usually at a price above market value, and cancels them. Under Section 68 of the Companies Act, 2013, a company can fund this repurchase only from its free reserves, securities premium account, or proceeds of any share issue. The company must also extinguish the repurchased shares within 7 days of completion.

Methods of Buyback of Shares

A company can execute a buyback through any of the following methods:

• Tender Offer: A fixed-price offer is made to all existing shareholders within a specified period. It is now the only permitted route for listed companies after SEBI discontinued the open-market route in April 2025. 
• Open Market: The company buys shares directly from stock exchanges, discontinued by SEBI in April 2025; reintroduction proposed in 2026.
• Odd-Lot Buyback: Purchases shares from shareholders holding less than the standard marketable lot.
• ESOP Buyback: Buys back shares issued to employees under a stock option or sweat equity scheme.

Example: Infosys Buyback, 2025

Infosys Limited’s Board of Directors approved a buyback of shares on September 11, 2025, with the following key details:

• Buyback size: ₹18,000 crore
• Price per share: ₹1,800 (at a premium over the prevailing market price)
• Shares repurchased: Up to 10 crore equity shares (face value ₹5 each)
• Percentage of paid-up capital: 2.41%
• Mode: Tender offer route through the stock exchange mechanism
• Shareholder approval: November 6, 2025, via postal ballot
• Record date: November 14, 2025
• Governing framework: Sections 68, 69, and 70 of the Companies Act, 2013, and SEBI (Buy-Back of Securities) Regulations, 2018

Upon completion, Infosys canceled all repurchased shares, reducing the total number of shares outstanding. This increased EPS for remaining shareholders without any additional investment on their part. 

Latest Update: Open-Market Buyback Route (2025–26)

From April 1, 2025, SEBI discontinued the open-market buyback route through stock exchanges, citing concerns around unequal shareholder participation. Listed company buybacks are now executed exclusively through the tender-offer route, as seen in the Infosys 2025 buyback below.

In 2026, SEBI proposed reintroducing open-market buybacks following the resolution of tax inequities under the Finance Act, 2026. Companies and advisors should confirm the current regulatory position before initiating a listed-company buyback.

Buyback of Shares Under the Companies Act, 2013: Legal Sections

Rule 17 of the Companies (Share Capital and Debentures) Rules, 2014, covers the procedural requirements. Listed companies must also comply with the SEBI Buy-Back Regulations, 2018. Here is a section-wise breakdown of each provision: 

1. Section 68: Power to Buy Back

Section 68 is the principal provision that empowers a company to purchase its own shares or other specified securities. It begins with a non-obstante clause, overriding every other provision of the Companies Act, 2013, including the general prohibition under Section 67.

Key provisions under Section 68:

• The Articles of Association (AOA) must authorize a buyback before the company proceeds. If no such provision exists, the AOA must first be amended.
• Section 68(2)(b) allows buyback up to 10% of paid-up equity capital and free reserves through a board approval. If the buyback is more than 10% and up to 25%, a special resolution in a general meeting is required.
• The buyback cannot exceed 25% of the total paid-up capital and free reserves in a financial year. It is also capped at 25% of the total paid-up equity capital.
• The debt-equity ratio must not exceed 2:1 post-buyback (6:1 for government companies carrying on NBFC or housing finance activities).
• All shares bought back must be fully paid up.
• A buyback cannot be funded from the proceeds of an earlier issue of the same kind of shares.
• The company must complete the buyback within one year from the date of the authorizing resolution.
• No fresh buyback offer can be made within one year from the closure of the preceding buyback.
• Shares under a lock-in period cannot be bought back before the expiry of that lock-in.

Penalty: Under Section 68(11), non-compliance attracts a fine of not less than ₹1 lakh, extendable up to ₹3 lakh, on the company and every officer in default.

2. Section 69: Accounting Treatment

Where a company buys back shares out of free reserves or the securities premium account, it must transfer a sum equal to the nominal value of shares bought back to the Capital Redemption Reserve (CRR) account. The CRR maintains the company’s capital base post-buyback and cannot be used for distributing dividends. 

3. Section 70: Prohibitions on Buyback

A company cannot undertake a buyback, directly or indirectly, in the following circumstances:

• Through any subsidiary company or investment company.
• When the company has defaulted on repayment of deposits, interest thereon, debentures, preference shares, dividends, or term loans to any financial institution or bank.

Section 70(1)(d) prohibits buyback if the company has not complied with the provisions of Sections 92 (annual return), 123 (declaration of dividend), 127 (failure to distribute dividend within 30 days), and 129 (financial statements) of the Companies Act, 2013.

Interpretation: Although the word “and” appears in the statutory text, MCA guidance and prevailing professional practice apply the prohibition disjunctively, i.e., default under any one of these four provisions is sufficient to attract the bar on buyback. A company must therefore clear default under each of these sections individually before proceeding with a buyback. This conservative reading aligns with the legislative intent of preventing buybacks by companies in compliance breach.

4. Rule 17: Companies (Share Capital and Debentures) Rules, 2014

Rule 17 prescribes key procedural requirements:

• Filing of Declaration of Solvency in Form SH-9 with the ROC.
• Maintenance of a separate bank account for buyback proceeds.
• Extinguishment of shares within 7 days of completion.
• Filing of Return of Buyback in Form SH-11 within 30 days of completion.

All three must be complied with before proceeding with the buyback of shares.

Conditions for Buyback of Shares Under the Companies Act, 2013

A company must satisfy all the following statutory conditions before it can undertake a buyback under Sections 68 and 70:

Pre-Conditions (Must Be Satisfied Before Initiating)

1. AOA Authorization — The Articles of Association must specifically authorize buyback. If silent, the AOA must be amended by special resolution.
2. Authorizing Resolution — A Board Resolution (for buyback up to 10% of paid-up equity + free reserves) or a Special Resolution (for buyback above 10% and up to 25%) must be in place.
3. All Shares Fully Paid-Up — Only fully paid-up shares can be bought back.
4. Debt-Equity Ratio Compliance — Post-buyback debt-equity ratio must not exceed 2:1 (or 6:1 for government companies in NBFC/housing finance).

Quantum Limits

5. 25% of Paid-Up Capital + Free Reserves — Total buyback in a financial year cannot exceed 25% of the aggregate.
6. 25% of Paid-Up Equity — Where equity is being bought back, it cannot exceed 25% of paid-up equity capital in that financial year.

Source of Funds

7. Permitted Sources Only — Buyback can be funded only from: (a) free reserves, (b) securities premium account, or (c) proceeds of an earlier issue of shares (other than the same kind of shares being bought back).
8. No Borrowed Funds — A company cannot use borrowed funds for a buyback.

Timing and Cooling-Off

9. Complete Within One Year — Buyback must be completed within 1 year from the date of the authorizing resolution.
10. One-Year Gap Between Buybacks — No fresh buyback offer for 1 year from the closure of the preceding offer.
11. Six-Month Restriction on New Issue — Cannot issue new shares of the same kind for 6 months after buyback (excluding bonus shares, ESOPs, and conversion of outstanding convertible securities).

Section 70 Prohibitions

12. No Default Status — Cannot undertake buyback while in default of: repayment of deposits, interest, debentures, preference shares, dividends, or term loans (mandatory 3-year cooling-off after default ceases).
13. No Compliance Defaults — Cannot undertake buyback if in default under Sections 92, 123, 127, or 129 of the Companies Act, 2013.
14. No Indirect Buyback — Cannot undertake buyback through a subsidiary or investment company.
15. No Lock-In Violation — Shares under a lock-in period cannot be bought back before lock-in expiry.

All 15 conditions must be satisfied; failure on any single condition can render the buyback void and attract a penalty under Section 68(11) of up to ₹3 lakh on the company and each officer in default.

Buyback of Shares in a Private Limited Company: Key Differences

Private limited companies can undertake buybacks under the same statutory framework, Sections 68, 69, and 70 of the Companies Act, 2013, read with Rule 17 of the Companies (Share Capital and Debentures) Rules, 2014, that applies to public and listed companies. However, several practical and procedural differences apply:

What’s Different for Private Limited Company Buybacks

Aspect	Private Limited Company	Listed Public Company
SEBI compliance	Not applicable	SEBI (Buy-Back of Securities) Regulations, 2018 must be followed
Mode of buyback	Tender offer is the most common (on a proportionate basis among shareholders)	The tender offer route is the only permitted mode since April 2025
Stock exchange filings	Not applicable	Required (announcement, post-buyback report, completion intimation)
Public announcement	Not required	Required (in newspapers in 4 languages, including English, Hindi, and regional)
Letter of Offer	Form SH-8 to shareholders directly	SEBI-compliant Letter of Offer with extensive disclosures
Timeline to complete	One year from the authorizing resolution	66 working days from the authorizing resolution
Postal ballot requirement	Not mandatory (depending on shareholder count)	Mandatory for special resolution
Cooling-off / lock-in	1 year cooling-off applies; 6-month restriction on new issue	Same
Verification of shares	Direct verification with shareholders	Through the depositories and registrar

Sample Board Resolution Framework

A typical board resolution for buyback by a private limited company should record:

1. Acknowledgement that the AOA permits buyback (or amendment is being separately proposed)
2. The maximum buyback amount and percentage of paid-up equity and free reserves
3. The source of funds (free reserves / securities premium / proceeds of earlier share issue)
4. The price per share or pricing methodology
5. The mode of buyback (proportionate to shareholders / odd-lot / ESOP)
6. Authority granted to specified directors to execute documents and file forms
7. Solvency declaration as required under Section 68(6)
8. Recommendation to shareholders for special resolution (if buyback exceeds 10% of paid-up equity + free reserves)

A private limited company typically completes a buyback in 4–8 weeks from board resolution to Form SH-11 filing — significantly faster than a listed company due to the absence of SEBI procedures. 

How to Apply for Buyback of Shares: Step-by-Step Procedure 

The buyback procedure under the Companies Act, 2013, and Rule 17 of the Companies (Share Capital and Debentures) Rules, 2014, includes the following steps:

Step 1: Check and Amend AOA

Verify that the AOA authorizes a buyback. If silent, amend the AOA by passing a special resolution and filing Form MGT-14 with the ROC.

Step 2: Convene Board Meeting

The Board passes a Board Resolution approving the buyback size, price, mode, and timeline. For buybacks exceeding 10% of total paid-up equity capital and free reserves, the Board recommends the matter to shareholders for a Special Resolution.

Step 3: Pass Special Resolution (if applicable)

The company convenes a general meeting and passes a Special Resolution accompanied by an explanatory statement disclosing all material facts.

Step 4: File Form SH-8 and Form SH-9

The company files the Letter of Offer (Form SH-8) and Declaration of Solvency (Form SH-9) simultaneously with the ROC, signed by at least two directors, including the Managing Director. The Letter of Offer must be dispatched to shareholders within 21 days of filing.

Step 5: Open a Separate Bank Account 

The company opens a dedicated bank account and deposits the entire buyback consideration before the offer opens.

Step 6: Open Buyback Offer

The offer remains open for a minimum of 15 days and a maximum of 30 days from the date of dispatch. Listed companies additionally comply with SEBI (Buy-Back of Securities) Regulations, 2018.

Step 7: Verify, Accept, and Make Payment

The company verifies shares tendered, accepts them on a proportionate basis where oversubscribed, and makes payment from the dedicated bank account.

Step 8: Extinguish and Cancel Shares, and Maintain Form SH-10 Register

The company must extinguish and cancel all repurchased shares within 7 days of the last date of completion of the buyback, including through depository mechanisms for dematerialized shares. The company must also maintain a Register of Shares Bought Back in Form SH-10, which records every transaction in respect of bought-back shares, including the consideration paid, the date of purchase, the date of cancellation, and the manner of disposal. Form SH-10 must be maintained at the registered office and is open to inspection by members.

Step 9: File Form SH-11

Within 30 days of completion, the company files the Return of Buyback in Form SH-11 along with a compliance certificate in Form SH-15, signed by two directors.

Step 10:Transfer to Capital Redemption Reserve

When the buyback is funded from free reserves or the securities premium account, the company must transfer a specified amount to the CRR account. This amount must equal the nominal value of the shares bought back.

Post-Buyback Restriction: The company cannot issue new shares of the same kind within six months of completing the buyback. However, exceptions include bonus shares, ESOPs, and conversion of outstanding convertible instruments.

Listed companies must complete the buyback process within 66 working days of the authorizing resolution.

Why Do Companies Buy Back Their Own Shares?

Companies initiate a buyback of shares for a range of financial, strategic, and regulatory reasons. The following are the primary objectives that drive a buyback decision:

1. Return Surplus Cash to Shareholders

When a company generates more cash than required for operations or expansion, it may choose to buy back its shares. This helps return surplus capital to shareholders without creating a recurring dividend obligation. 

2. Improve Earnings Per Share (EPS)

A buyback reduces the total number of shares outstanding. With fewer shares in the market, the company’s net profit is distributed over a smaller base. This directly increases EPS even if the company’s actual profits remain unchanged.

3. Signal Undervaluation

When management believes its shares are undervalued, a buyback signals confidence to the market. It communicates that the company considers its own stock a worthwhile investment at the current price.

4. Optimize Capital Structure

Companies use buybacks to restructure their debt-equity mix. By reducing equity through a buyback, a company can move toward a more efficient capital structure, particularly when it carries low-cost debt and excess equity on its balance sheet.

5. Prevent Hostile Takeovers

A buyback reduces the number of freely available shares in the market, making it harder for an external party to acquire a controlling stake. Promoters’ percentage shareholding also increases automatically as the total share count falls.

6. Provide an Exit Route to Shareholders

A buyback gives existing shareholders a structured and regulated opportunity to exit their investment at a fair price. This is especially beneficial in unlisted or private companies where liquidity is limited. 

7. Improve Tax Efficiency

Until October 1, 2024, shareholders received buyback proceeds tax-free under Section 10(34A) of the Income Tax Act, 1961, while the company paid a flat buyback tax under Section 115QA. From October 1, 2024, this regime was abolished, and buyback proceeds became taxable as a deemed dividend in shareholders’ hands. 

From April 1, 2026, the Finance Act, 2026, restored capital gains treatment, making buybacks relatively more tax-efficient once again for most shareholders. The tax section of this guide covers each regime in detail. 

8. Utilize Treasury Surplus Efficiently

Rather than allowing idle cash to drag down Return on Equity (ROE), companies deploy surplus funds through a buyback. This helps improve overall capital efficiency and financial ratios.

Most buybacks serve multiple objectives at the same time. However, the Companies Act, 2013, prohibits companies from using buybacks to manipulate share prices.

Effect of Buyback of Shares on Share Price

A buyback influences share price through several mechanisms — but the long-term impact depends on the company’s underlying fundamentals, not just the buyback announcement.

Short-Term Price Effects (Days to Weeks)

1. Premium Anchoring — Companies typically announce buyback prices at a 10-20% premium to the market price, which immediately pulls the market price upward toward the buyback price (the “anchoring effect”).
2. Confidence Signaling — A buyback announcement signals that management believes the stock is undervalued, which attracts retail and institutional buying.
3. Reduced Float — Once the buyback executes and shares are cancelled, the reduced share count creates upward pressure on price per share (the same total market value distributed over fewer shares).

Long-Term Price Effects (Months to Years)

1. EPS Improvement — With fewer shares outstanding, earnings per share rise, which often translates into higher target prices from analysts and re-rating by the market.
2. ROE Boost — Capital efficiency improves as equity base shrinks, which can attract value-focused institutional investors.
3. Limited Sustained Effect Without Fundamentals — If the company’s revenue, margins, or growth prospects don’t improve in parallel, the share price typically reverts to pre-buyback levels after the initial bump fades.

Empirical observation: Studies of Indian buybacks (2015-2024) suggest that the average share price tends to gain 3-7% in the 30 days following a tender-offer announcement, with sustained outperformance only when accompanied by genuine earnings growth. Buybacks executed at inflated prices (where the buyback price significantly exceeds intrinsic value) tend to underperform the broader market over 12-24 months.

Tax on Buyback of Shares: All Three Regimes (2013 to 2026)

India changed the tax treatment of buybacks three times between 2013 and 2026. The applicable regime depends on the date of the buyback offer.

1. Regime 1: Pre-October 1, 2024 (Section 115QA)

The company paid buyback tax at an effective rate of 23.296% on the distributed income, which was the difference between the buyback price and the issue price of shares. Shareholders received the buyback proceeds tax-free under Section 10(34A). The company does not deduct TDS on proceeds paid to shareholders.

2. Regime 2: October 1, 2024, to March 31, 2026 (Finance (No. 2) Act, 2024)

Section 115QA and Section 10(34A) were abolished. The following applied:

• The entire buyback amount received by the shareholder was taxable as a deemed dividend under Section 2(22)(f). Tax was levied at the applicable slab rates, not just on the gain. 
• The cost of acquisition of shares tendered became a capital loss, carry-forwardable for up to eight assessment years.
• TDS is applied under Section 194 at 10% for resident shareholders and Section 195 for non-residents.
• Two paired amendments made this particularly harsh. Section 46A treated the sale consideration as nil, so the entire cost of acquisition became a capital loss that could be carried forward for up to eight assessment years. Section 57 disallowed any deduction against the deemed dividend income.

3. Regime 3: From April 1, 2026 (Finance Act, 2026)

The Finance Act, 2026, restored capital gains treatment. No company-level buyback tax applies. Shareholders pay tax only on actual gain, buyback price minus cost of acquisition:

• Shares held for more than 12 months: LTCG at 12.5% (with exemption of up to ₹1.25 lakh).
• Shares held up to 12 months: STCG at 20%.
• Promoters pay capital gains tax plus an additional differential levy at an effective rate of 30% (individual promoters) or 22% (promoter companies).

Note: Tax laws are subject to change. Companies and shareholders must consult a qualified tax professional before initiating or participating in a buyback.

Advantages and Disadvantages of Buyback of Shares

A buyback of shares offers benefits for both companies and shareholders but also involves risks and limitations. The table below sets out the key advantages and disadvantages side by side:

Advantages	Disadvantages
Fewer shares outstanding directly boost earnings per share, even without profit growth	A large buyback leaves the company cash-constrained if it needs capital for operations or expansion shortly after
A buyback at a premium signals that management considers its own stock undervalued	Funds used could have generated greater long-term value if deployed toward R&D, acquisitions, or debt repayment
Deploying idle cash improves return on equity (ROE) and prevents capital from dragging down financial ratios	Buying back shares at inflated prices destroys shareholder value rather than creating it
A one-time action that returns capital without creating recurring dividend obligations	A buyback improves ratios on paper but leaves revenue, margins, and competitive positioning unchanged
As total shares outstanding fall, promoters gain a higher percentage stake automatically	Tax rules changed three times between 2013 and 2026. Companies and shareholders must verify the applicable regime before proceeding
Gives shareholders in unlisted or thinly traded companies a regulated opportunity to exit at a fair price	The Companies Act, 2013, prohibits using buybacks to artificially inflate share prices

Planning a buyback of shares for your company? The legal, procedural, and ROC compliance requirements under the Companies Act, 2013, can be complex. Let RegisterKaro’s experts handle it end-to-end, from board resolutions to ROC filings. Contact us today for buyback compliance assistance!

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