What is buyback of shares?

Buyback or share repurchase is a corporate action in which a company buys back its shares from their shareholders. Generally, companies buyback shares at a price higher than the current market price. There are two types of buyback: tender offer and open market offer. Companies can choose either of these methods to buy back shares from their shareholders.

• Tender offer: The company makes an offer to buy back its shares at a particular price (offer price) at which the shareholders can tender, i.e., sell their shares. The amount is credited to the shareholders primary bank account. Clients can apply for more shares than their 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 the demat account by the RTA. To know the steps to apply for a buyback, see How to apply for buybacks, takeovers, delistings and OFS at Zerodha?
• Open-market offer: The company can buy back its shares by actively buying from sellers on the exchange. The buyback period is mentioned in the buyback offer, and it can last for months. The amount is credited to the shareholders trading account. The buyback period can be checked by visiting the SEBI (WEB) website. To learn more about selling shares through open market buyback, see How to apply for Buyback through the open market?
  

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• The charges are ₹20+GST per order for applying for a buyback in a tender offer. The charges are non-refundable irrespective of whether the order is accepted, rejected or failed. If multiple orders are placed, charges will be levied accordingly. Statutory charges are also applicable. To learn more about charges, see What are the various statutory charges like stamp duty and taxes etc.?
• A shareholder is eligible for all corporate action benefits, including buyback, even if the shares are pledged. However, the shares need to be unpledged before tendering them in the buyback. Pledged shares and T1 holdings are not considered for buyback.
• 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 the shareholders. The amount received from buybacks is considered as deemed dividends, and taxed based on the 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 shareholders, which can be offset against other capital gains or carried forward for up to 8 years.

Visit zerodha.com/varsity/chapter/five-corporate-actions-and-its-impact-on-stock-prices to know more about the buyback of shares and other corporate actions.