New Delhi, April 2: The Securities and Exchange Board of India (SEBI) proposed on Thursday to resume open market buybacks through exchanges. This move follows recent changes in tax regulations.
In a consultation paper, the market regulator suggested that companies should once again be allowed to repurchase their shares directly from the open market as an additional option under the current buyback rules.
This method had previously been halted due to tax-related concerns. SEBI noted that recent amendments to the Income Tax Act have addressed the existing imbalances in taxation.
Under the revised rules, the amount received by shareholders from buybacks will be treated as capital gains, and taxes will be applied accordingly. This aligns the taxation of buybacks with regular stock market transactions, making it fair for all investors.
The regulator stated that transferring the tax burden from companies to shareholders has made selling shares in the open market comparable to participating in buybacks through stock exchanges.
Furthermore, it mentioned that this method is widely used in global markets as it aids in continuous price discovery and improves liquidity.
SEBI also highlighted that resuming open market buybacks would provide companies with greater flexibility in managing their capital while ensuring equitable treatment of public shareholders from a tax perspective.
However, it added that this initiative would be subject to appropriate regulations and compliance mechanisms.
This proposal emerged after industry bodies, including the Federation of Indian Chambers of Commerce and Industry and the Association of Investment Bankers of India, raised the issue with the regulator.
These organizations argue that open market share buybacks are more efficient and are widely utilized globally, helping companies stabilize their share prices.
If implemented, this move could represent a significant shift in India’s capital market regulations, offering companies another avenue to return cash to shareholders and enhancing overall market efficiency.
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