Buyback or share repurchase is a corporate action where a company buys back its shares from shareholders. Companies generally buy back shares at a price higher than the current market price. Currently, companies can only use the tender offer method for buybacks.
How buyback works
Tender offer: The company makes an offer to buy back its shares at a particular price (offer price), where you can tender (sell) your shares. The amount is credited to your primary bank account. You can apply for more shares than your entitlement or eligibility. However, if more shares are tendered than the entitlement, the acceptance of these additional shares for buyback is subject to the acceptance ratio determined by the company. Any shares not accepted will be returned to your demat account by the RTA.
Open market buyback (discontinued): Previously, companies could buy back shares by actively buying from sellers on the exchange. As per regulations (WEB), since April 1, 2025, the option of open market buyback through the stock exchange is not available to any company.
Charges and eligibility
The charges are ₹20+GST per order for applying for a buyback in a tender offer. The charges are non-refundable irrespective of whether your order is accepted, rejected or failed. If you place multiple orders, charges will be levied accordingly. Statutory charges are also applicable.
You are eligible for all corporate action benefits, including buyback, even if your shares are pledged. However, you need to unpledge your shares before tendering them in the buyback. Pledged shares and T1 holdings are not considered for buyback.
Tax implications
Tax on buybacks before 1st October 2024 are paid by the company buying back the shares. Tax on buybacks after 1st October 2024 is to be paid by you as the shareholder. The amount you receive from buybacks is considered as deemed dividends and taxed based on your slab rates. The cost of acquiring shares tendered in a buyback will be treated as a capital loss (either short term or long term) for you, which can be offset against other capital gains or carried forward for up to 8 years.
To learn more about stock splits and other corporate actions, visit Corporate actions and impact on stock prices module on Varsity by Zerodha.