Tax, securities norm changes make buybacks less attractive

Context:

1. Drastic Fall in Share Buybacks:

   • As of June 26, 2025: Only 4 buyback offers worth ₹186 crore.

   • In 2024: There were 38 offers worth ₹8,000+ crore.

   • Data source: PrimeDatabase.

2. Reason 1: Taxation Changes (Effective October 1, 2024):

   • Earlier: Companies paid a 20% buyback tax.

   • Now: Tax shifted to shareholders, similar to dividends.

   • Shareholders must now pay capital gains tax, reducing post-tax returns.

   • Result: Buybacks became less attractive despite a bearish market (Oct 2024–Mar 2025).

3. Reason 2: Regulatory Changes by SEBI:

   • SEBI phased out open market buybacks from FY 2025–26.

   • Now only tender offer route is allowed, which is more restrictive.

   • This has limited corporate flexibility in executing buybacks.

4. Pre-Emptive Action by Companies:

   • Many firms rushed buybacks in September 2024, ahead of new tax rules.

   • Post-reforms, buyback plans slowed or were dropped entirely.

5. Impact on Market Stakeholders:

   • Merchant bankers involved in buyback advisory are facing reduced business.

   • The buyback slowdown is a result of both fiscal and regulatory pressures.

Recent tax reforms and SEBI regulations have made buybacks unattractive for both companies and shareholders, leading to a steep decline in buyback activity despite market conditions that would typically encourage them.