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Revisiting Corporate Buyback Regulation under the Corporate Laws (Amendment) Bill, 2026

Revisiting Corporate Buyback Regulation under the Corporate Laws (Amendment) Bill, 2026 

Introduction

The concept of share buybacks has emerged as an important corporate financial strategy in modern company law and securities regulations.  A buyback refers to the process wherein a company purchases its own shares from the existing shareholders or investors. The shares are usually purchased at a price above the prevailing market value, with the aim of increasing earnings per share and strengthening investor confidence. 

The primary objective of a buy-back is to enhance the shareholders’ value by reducing the number of outstanding shares in the market, which ultimately increases the Earnings Per Share (EPS). Companies also undertake buybacks to return surplus cash to shareholders when there are limited opportunities for profitable investment or expansion. Further, a buyback acts as a positive signal to the market, reflecting the management’s confidence in the company’s future growth prospects and indicating that the shares may be undervalued. 

Buy-back also helps to improve important financial ratios such as Earnings Per Share (EPS) and Return on Equity (ROE), which may enhance the company’s market image and attract investors. Additionally, buybacks increase the proportional ownership and voting rights of the remaining shareholders. 

Corporate governance also plays an important role in this process. Whenever a company decides to purchase its own shares, it cannot do so randomly. Before this, a fair procedure has to be followed, which includes taking permission from the board of directors, following government and SEBI rules, and informing the shareholders about the same. Corporate governance ensures that the company’s directors do not misuse their power and money, and that all buyback procedures are conducted fairly and honestly. 

In India, buybacks are generally governed by Sections 68 to 70 of the Companies Act, 2013, and the SEBI (Buy-back of Securities) Regulations, 2018. But recently, in March 2026, the government has brought the Corporate Laws (Amendment) Bill, 2026, which tends to amend the Companies Act, 2013 and the Limited Liability Partnership Act, 2008. After the introduction in the Lok Sabha, the bill has been referred to a Joint Parliamentary Committee (JPC) for detailed scrutiny. It was introduced as the old laws were too rigid, restricted financially strong companies, and imposed inflexible limits. 

Meaning & Concept of Buy-back

Buybacks are nothing but the process by which the company buys its own shares from existing investors, which increases the value of remaining shares and provides liquidity to the investors. It changes the company’s financial structure, but it is different from the reduction of share capital and redemption of preference shares. People get confused about these three because all three involve shares getting cancelled or removed in some way, and a change in the company’s capital structure, but the purpose and the process of doing so are different. 

After knowing the concept of buyback, the main question arises: how does a company buy its shares back? There are basically three methods used by the company, i.e., Tender Offer Method, Stock Exchange Purchase Method, and Book Building Process. 

In the Tender Offer Method, the company offers a fixed price to the shareholders, which is higher than the market price. Also, atleast 15% of buybacks are reserved for shareholders, which consist of persons holding shares worth up to Rs. 2 Lakhs. 

The Stock Exchange Purchase Method involves buying shares directly from the stock market with the help of brokers. This method is not in practice anymore since April, 2025, as the government wanted a more transparent system where all shareholders get equal opportunity. 

The other method is the Book Building Process, which is only used by listed companies. In this, the company does not fix the prices immediately but instead asks the shareholders to place bids and then the company decides the final price, which is known as price discovery. 

Legal Framework Governing Buy-Back

In India, buybacks are mainly governed by the Companies Act, 2013, the SEBI (Buy-back of Securities) Regulations, 2018 and the Income-tax Act, 2025.

  • The Companies Act, 2013-

Section 68 of the Companies Act, 2013, gives power to the companies to buy back their own shares or specified securities. But there are certain restrictions on it. As per this section, the company cannot use money raised from the same kind of shares to buy back those shares. For this purpose, the company uses money that comes from free reserves, securities premium account, and proceeds of shares/securities. 

As per the law, a company cannot buy unlimited shares, and the buybacks are authorised by the Articles of Association. It should be approved by either the Board of Directors (BOD) upto 10% or by a special resolution of shareholders (above 10%). 

A company can buy back only up to 25% of paid-up capital and free reserves, and after the buyback, its debt equity ratio should not exceed 2:1. Further, only paid-up shares can be brought back, and the company must complete it within 1 year.

  • SEBI Regulations, 2018-

It is only applied to the companies whose shares trade on the stock market, i.e. listed companies. SEBI Regulations prescribe how the buybacks must be carried out transparently and fairly. According to this, companies can conduct buybacks through the tender offer method and the book built process. 

It also provides the facility of an escrow account, where companies must deposit money after two days of making a public announcement. This ensures that there are sufficient funds available to complete the process of buybacks. 

Further, only fully paid-up shares are eligible for buybacks, and it should be within the limit of the debt-equity ratio. The buy-back process timeline has also been shortened to 22 working days to improve efficiency. 

  • The Tax Framework-

The tax framework for buybacks explains how the tax is charged on money received during a buyback and who has to pay it – the company or the shareholders. Over time, rules have been changed, which further divide it into three regimes-

  1. Regime 1 (Before October, 2024)- During this time, the company had to handle the burden of paying taxes on the buybacks are the shareholders were free from this duty.
  2. Regime 2 (October 2024- March 2026)- the tax treatment changed, and buyback proceeds were treated as deemed dividend income. In this system, the company deducted Tax Deducted at Source (TDS) at 10% under Section 194 if the dividend amount paid to a shareholder exceeded ₹10,000 in a financial year. Thus, shareholders became responsible for taxation on the proceeds received. 
  3. Regime 3 (April 1, 2026- present)- The Income-tax Act, 2025, introduced another important change. Now the buyback proceeds are taxed under the head ‘Capital Gains’ rather than treated as deemed dividend income. The taxable gain is determined after deducting the original purchase price of the shares, and in most cases, TDS is not deducted by the company on capital gains earned by resident shareholders. Under this system, tax is imposed on shareholders’ actual gains, which appears more logical.

Overview of the 2026 Amendment Bill

India’s corporate law framework has transformed over the past decades. This has been done to promote the ease of doing business alongside preserving government standards. With this point of view, the Indian government in March 2026 proposed the Corporate Laws (Amendment) Bill, 2026 in the Lok Sabha, which is now under the scrutiny of the Joint Parliamentary Committee. 

The buybacks’ specific reforms were driven by several practical problems, which include inflexibility in a volatile market, capital management constraints, and the need to relax the current 25% cap on buybacks for specific classes of companies. 

The major changes in buyback provisions in the latest Corporate Laws (Amendment) Bill, 2026 are as follows-

  • Companies may be allowed two buybacks in one Financial Year-

Currently, companies can only make one buyback offer within one year of the presiding buyback offer. 

But the bill proposes that companies should be allowed to make two buyback offers in a financial year, but there should be six months gap between the closure of the past offer and the commencement of the next offer. 

  • Relaxation of the existing 25% cap on buybacks-

As per the existing rule, companies cannot exceed 25% of paid-up capital and free reserves. But with the help of the current proposed bill, the government is trying to reduce this cap for a certain class of companies. It means the cap will not apply uniformly to all companies.

  •  Wider scope of securities eligible for buybacks-

Earlier, buy-backs mainly focused on ordinary shares and certain employee stock options. The proposed amendment expands this and may include securities given to employees under schemes connected to the company’s share value under Section 62(1)(b) of the Companies Act, 2013. 

  • Increased procedural flexibility and ease of capital restructuring –

The proposed amendment in the new bill makes the procedure of buybacks more flexible, and the companies can manage their money and capital structure easily. 

  • Parallel SEBI reforms affecting listed companies –

Alongside the bill, the SEBI has also suggested some new changes in the buy – back process with the aim of making it clearer and more transparent.

The proposed changes include- the companies may be allowed to purchase shares directly from the stock market. Companies may get fixed timelines to complete the process of buybacks. Further, a separate system or window may be introduced for smoother and more transparent buy-back transactions. 

Procedure for Corporate Buyback under the 2026 Amendment Bill

  • Step 1:Authorisation under Articles of Association –

The company first needs to determine whether the Articles of Association authorise buyback; where this is absent, the company cannot proceed.  

  • Step 2: Check Eligibility and Statutory Conditions –

To be eligible to buy back, the company has to satisfy the requirements of Section 68, notably, the availability of permissible funds, the requirements of the debt-equity ratio, and prescribed buyback limits. 

The Amendment Bill introduces flexibility for specified classes of companies in terms of buyback percentages and other conditions. 

  • Step 3:Getting approval – 

This can be obtained through a Board resolution where the buyback does not exceed 10% of its paid-up capital and free reserves or through a special resolution of shareholders where the buyback exceeds 10% of its paid-up capital and free reserves.  

  • Step 4:Permissible sources of funds –

Only free reserves, securities premium account or proceeds of shares/securities as provided under Section 68 can be used to finance buyback.  

  • Step 5:Declaration of Solvency –

For undertaking the buyback, the company will be required to file a declaration of solvency stating that it has the ability to meet its liabilities. The Amendment Bill proposes the removal of the requirement of affidavits for the purpose of verification, to reduce compliance. 

  • Step 6: Selection of the method of buyback –

After the declaration of solvency, the company has to choose the method of buyback. It can be a tender offer method or a book-building process. The company should make sure that the chosen method follows the SEBI Regulation. 

  • Step 7: SEBI compliance for listed companies –

The buyback will have to satisfy SEBI requirements relating to disclosures, escrow arrangements, time limits, and investor protection measures.  

  • Step 8:Executing the buyback –

The company will carry out the buyback and purchase the shares from the shareholders, using the approved method and following statutory requirements. 

  • Step 9:Extinguish and cancel the shares –

On completion of the buyback, the company will need to extinguish and cancel the buyback shares within the prescribed time period.

  • Step 10: Post buyback compliance –

The company will have to file the basic returns and adhere to restrictions of the post-buyback period, such as restrictions on the issue of the same class of shares.  

  • Step 11: More flexibility under the 2026 Amendment Bill –

Prescribed classes of companies are likely to benefit from overall more flexibility as the Bill proposes the ability to carry out two buybacks in one year (with a six-month gap) and the scope for the Central Government to prescribe buyback limits (as opposed to the current 25%). 

Challenges and Concerns under the Corporate Laws Amendment Bill, 2026 

Though the government seek to transform the buyback procedure and make sure that it is carried out fairly without harming the shareholders, there still lie certain challenges and concerns.

The Corporate Laws (Amendment) Bill, 2026, aims to give companies more flexibility in restructuring their capital. It allows certain types of companies to make up to two buy-back offers in a financial year. It also permits changes in buy-back thresholds. However, the proposed changes to Section 68 of the Companies Act, 2013, have raised several legal, regulatory, and governance issues. 

One significant concern is the excessive delegation and regulatory uncertainty. The Bill removes the fixed limit of 25% and introduces a framework that allows the Central Government to set higher buy-back percentages through rules. Critics say this gives the executive too much power and creates uncertainty. Companies may have to wait for future announcements to know the applicable limits and eligibility criteria.

Another issue is the potential for executive overreach. The Central Government can set different buy-back rules for various types of companies, which raises fears of arbitrary enforcement and unfair treatment among companies in the same sector. Additionally, the new tax framework has sparked worries about discriminatory impacts on shareholders. Buy-back proceeds are expected to be taxed as capital gains for shareholders, rather than as dividend income. Promoters may also face a higher tax surcharge, leading to claims of unequal tax treatment between promoter and non-promoter shareholders.

Moreover, the increased buy-backs related to employee incentive schemes, like sweat equity and ESOP-linked arrangements, have raised concerns about corporate governance and accountability. Regulators and auditors might need to monitor these transactions closely to prevent misuse for unfair financial practices, round-tripping, or evading capital valuation norms. Furthermore, changing buy-back thresholds could create procedural challenges in mergers and acquisitions (M&A). This is especially true for private equity exits, as companies and legal professionals may need to rewrite shareholder agreements and add stronger protections against changes in the law to navigate uncertainty during this transition.

Conclusion

The Corporate Laws (Amendment) Bill, 2026, is an important step toward modernising India’s buy-back framework. It offers more flexibility in capital restructuring and improves the ease of doing business. By allowing certain companies to make multiple buy-back offers and introducing flexible buy-back limits, the Bill aims to help companies manage surplus capital better and boost shareholder value. At the same time, these reforms match changes in the tax rules and the way businesses operate.

 

However, the proposed changes also raise important legal and governance issues related to regulatory uncertainty, executive discretion, shareholder equality, and corporate accountability. The increased reliance on delegated rule-making and different treatment for certain companies may lead to confusion and challenges in implementation. Therefore, while the Amendment Bill could make India’s buy-back system more flexible and business-friendly, its success will depend on clear regulatory guidance, transparent implementation, and sufficient protections to balance corporate flexibility with investor safety and fair governance.

Reference 

Swati Kumari
Author: Swati Kumari