A buyback, or share repurchase, is a corporate action where a company buys back its own stocks from shareholders, usually at a price higher than the current market price. Companies currently use only the tender offer method for buybacks.
How buybacks work
- Tender offer: The company makes an offer to buy back its stocks at a specific offer price. You can tender (sell) your stocks in response to this offer, and the amount is credited to your primary bank account. You can apply for more stocks than your entitlement or eligibility. However, if more stocks are tendered than the entitlement, the company's acceptance ratio determines how many of those additional stocks are accepted. The Registrar and Transfer Agent (RTA) returns any unaccepted stocks to your demat account.
- Open market buyback (discontinued): Previously, companies could buy back stocks by actively purchasing from sellers on the exchange. As per regulations (WEB), since 1st April 2025, the open market buyback method through the stock exchange is no longer available to any company.
Charges and eligibility
Applying for a buyback in a tender offer costs ₹20 + GST per order. These charges are non-refundable regardless of whether your order is accepted, rejected, or failed. If you place multiple orders, charges apply to each order. Statutory charges are also applicable.
You are eligible for all corporate action benefits, including buybacks, even if your stocks are pledged. However, you need to unpledge your stocks before tendering them in the buyback. Pledged stocks and T1 holdings are not considered for buybacks.
Tax implications
For buybacks on or after 1st April 2026, you, as the shareholder, are responsible for paying the tax. The amount you receive is treated as capital gains, and you can deduct the cost of acquiring the tendered stocks from the buyback proceeds. The applicable tax rate depends on how long you held the stocks:
- Long-term (held for more than 12 months): 12.5% capital gains tax.
- Short-term (held for 12 months or less): 20% capital gains tax.
To learn more about stock splits and other corporate actions, visit the Corporate actions and impact on stock prices module on Varsity by Zerodha.