Share Buyback in India: How the Tender Offer Works, Why Companies Do It and How Buyback Is Taxed From 2026

A share buyback is one of the ways a company returns surplus cash to shareholders, and for retail investors it often means a chance to sell at a premium to the market price. The mechanics, however, are not obvious, and the tax rules have just changed.

This guide explains how a buyback works in India, the tender offer route, the acceptance ratio, why companies do it, and how buyback tax works after the Budget 2026 change.

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What Is a Share Buyback?

In a buyback offer, a company uses its own cash or free reserves to repurchase shares from its shareholders. The repurchased shares are cancelled, so the number of shares in issue falls. With fewer shares, each remaining share represents a larger piece of the company, and earnings per share usually rise.

A company can buy back only within limits set by law, generally up to 25 percent of its paid-up capital and free reserves, with board and shareholder approvals required at different thresholds.

A company can also buy shares from the open market through the exchange, which works differently from a tender offer.

How the Tender Offer Works

In India, listed companies usually use the tender offer route. The company announces a buyback price, normally above the market price, and a record date. Only shareholders on the record date can tender shares. You place the tender through your broker during the offer period, and the shares are blocked until the process ends.

1. The company announces the buyback price, size and record date.
2. You check that you hold shares on the record date.
3. You place a tender request through your broker within the offer window.
4. The company accepts shares in the acceptance ratio announced.
5. Accepted shares are bought, and the money is credited. Unaccepted shares are returned to your demat account.

Acceptance Ratio and the Small Shareholder Category

If more shares are tendered than the company wants to buy, only a portion is accepted. That portion is the acceptance ratio. Rules reserve a part of the offer for small shareholders, whose holdings on the record date are worth up to a threshold amount, so retail investors often see a better ratio than large holders.

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Tender only the quantity you are happy to sell, and do not assume every share will be accepted. Check the ratio in the final announcement.

Why Companies Buy Back Their Shares

• To return surplus cash when there are few growth uses for it.
• To support the share price and boost earnings per share.
• To signal management's confidence that the shares are undervalued.
• To adjust the capital structure and the promoter holding in some cases.

Not every buyback is positive. A buyback financed by debt, or one used mainly to offset share issuance, adds less value. Even large companies tracked by the Nifty 50 have used buybacks for different reasons, so read the objective in the announcement.

Buyback Tax in India From April 2026

Until 30 September 2024, the company paid a separate buyback tax and shareholders received the proceeds tax free. From 1 October 2024, the proceeds were taxed as deemed dividend at the shareholder's slab rate, with no deduction for the purchase cost. Budget 2026 reversed this. From 1 April 2026, buyback proceeds are taxed as capital gains in the hands of shareholders, so you pay tax only on the gain over your cost.

The gain is short term or long term depending on your holding period, and promoters face an additional tax. Confirm the exact rate for your case with a tax professional before you tender.

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Conclusion

A share buyback gives shareholders a way to sell at a set price, often at a premium, while the company reduces its share count. Check the record date, the acceptance ratio and the reason for the offer before you tender.

Under the 2026 rules, buyback tax now follows the capital gains framework, which treats the proceeds more fairly for investors who bought above the offer price.

Frequently Asked Questions

What is a share buyback?

Ans. A buyback is when a company repurchases its own shares from shareholders using its cash or reserves. The shares are cancelled, so fewer remain in issue. Buybacks are often made at a price above the market price through a tender offer.

How do I participate in a buyback?

Ans. You must hold the shares on the record date. Then you place a tender request through your broker during the offer window. The shares are blocked until the company announces acceptance, and unaccepted shares return to your demat account.

What is the acceptance ratio in a buyback?

Ans. It is the proportion of tendered shares that the company accepts. If more shares are tendered than the company will buy, only part of your tender is accepted. A separate category for small shareholders often has a better acceptance ratio.

How is a buyback taxed in 2026?

Ans. From 1 April 2026, buyback proceeds are taxed as capital gains for shareholders, so tax applies to the gain over your cost. Before that, they were taxed as deemed dividend. Promoters face an additional tax, and rates depend on holding period.

Is a buyback good for shareholders?

Ans. It can be, since you can sell at a premium and the remaining shareholders hold a larger share of the company. It is not always positive, though. A buyback funded by debt or aimed only at lifting the price adds less value.

Who is eligible to tender shares in a buyback?

Ans. Only shareholders whose names are on the record date can tender. If you buy after the record date, you cannot participate in that buyback. Under T+1 settlement, you must buy at least one working day before the record date.

Does a buyback increase earnings per share?

Ans. Usually yes. Because the buyback reduces the number of shares in issue, the same profit is divided over fewer shares, so earnings per share rises. This does not mean the company's profit itself has grown.