Share Buyback: How to Tender Shares and How It Is Taxed

To take part in a share buyback, you hold the shares on the record date and place a tender request through your broker while the offer is open. For buybacks from 1 April 2026, you pay capital gains tax only on your profit: the buyback price minus what you paid. Between 1 October 2024 and 31 March 2026, the whole amount was taxed as dividend instead.

Key facts

Tender offer vs open-market buyback

A company can buy back its shares in two broad ways. In a tender offer, it announces a fixed price, a number of shares and a record date. Every shareholder on that date can offer shares, and the company accepts them in proportion to holdings.

In an open-market buyback, the company buys shares on the exchange at market prices over a set period. You do nothing special: if you sell in the market while the company is buying, your order may be matched with it. SEBI phased this route out and stopped it from 1 April 2025, because only a few sellers got matched. Its July 2026 amendment brought it back from 1 August 2026, capped at less than 15% of paid-up capital and free reserves. The offer must open within 4 working days of the public announcement and close within 66 working days of opening.

SEBI’s board papers link the return of this route to the tax change: sellers now pay tax on a buyback the same way they do on an ordinary sale.

Record date and entitlement ratio

In a tender offer, the record date decides who can take part. Shares must be in your demat account at the end of that day. The company then publishes an entitlement ratio for each category, which tells you how many shares you can be sure of offering.

Infosys’s 2025 buyback shows how this works. It offered to buy 10 crore shares at ₹1,800 each, worth ₹18,000 crore. The record date was 14 November 2025, and the offer ran from 20 to 26 November 2025. Small shareholders got a ratio of 2 shares for every 11 held; the general category got 17 for every 706, according to ICICI Direct’s summary.

Because 15% of the offer is reserved for small shareholders, their ratio is usually far better. Small shareholders are those whose holding in that company was worth ₹2 lakh or less on the record date.

How to tender shares through your broker

1. Check that you held the shares at the end of the record date.
2. Read the letter of offer the company sends by email, or download it from the company’s or the stock exchange’s website. Note your category and entitlement ratio.
3. Log in to your broker’s app or website and open the buyback or corporate actions section.
4. Select the company and enter the number of shares you want to tender.
5. Submit the request before the tender period closes. Your broker places the bid on the exchange’s buyback window.
6. The tendered shares are blocked in your demat account until the offer is settled.
7. After settlement, accepted shares are debited and the buyback price is credited to your bank account through the broker.

Shares held in physical form need the physical tender form sent to the registrar, as set out in the letter of offer. You can also tender more than your entitlement; the extra shares are accepted only if other shareholders tender less than theirs.

Acceptance ratio and returned shares

The acceptance ratio is the share of tendered shares the company actually buys. If a buyback is heavily subscribed, you may sell far fewer shares than you offered. Shares not accepted are released back to your demat account, and you can sell or keep them as usual.

Many investors buy shares just before the record date to get into the small-shareholder category. The share price can fall once the record date passes, so compare the likely acceptance with the loss you could make on the shares returned to you.

How a buyback is taxed

Buybacks on or after 1 April 2026

The Finance Act, 2026 amended the Income-tax Act, 2025 so that the amount received on a buyback is charged under the head “Capital gains”, not as dividend. You pay tax only on the difference between the buyback price and your cost of acquisition.

For listed equity shares, the rates set by the Finance (No. 2) Act, 2024 apply. Short-term gains, on shares held up to 12 months, are taxed at 20%. Long-term gains are taxed at 12.5% above an exemption of ₹1.25 lakh a year across all such gains. Both rates are for shares on which securities transaction tax (STT) is paid; check your contract note.

Example: you bought 50 shares at ₹1,400 more than a year ago, and 20 are accepted at ₹1,800. Your long-term gain is ₹8,000 (20 × ₹400). If your other long-term gains for the year are small, this may fall within the ₹1.25 lakh exemption. You can check the figure with the capital gains calculator.

Promoters pay more. Their effective tax on buyback gains is 30%, or 22% if the promoter is a company, made up of normal tax plus an additional tax.

Buybacks from 1 October 2024 to 31 March 2026

For these buybacks, the Finance (No. 2) Act, 2024 treated the entire amount paid as dividend under the Income-tax Act, 1961, taxed at your slab rate. The cost of the shares bought back became a capital loss. You could set that loss off against capital gains or carry it forward.

In the example above, the full ₹36,000 would have been dividend income, and ₹28,000 would have been a capital loss. Report these in your return for the year of the buyback; a buyback in FY 2025-26 goes in the return for AY 2026-27. Our page on taxation on stocks and F&O covers how other share income is taxed, and LTCG on shares explains the exemption in detail.

If you took part in a buyback in both regimes or hold shares as a promoter, a chartered accountant can check your return.

Frequently asked questions

How do I participate in a buyback of shares?

Hold the shares on the record date, then place a tender request through your broker’s buyback section during the offer period. Accepted shares are paid for at the buyback price.

Is buyback income taxable as dividend now?

No, not for buybacks from 1 April 2026. The gain is taxed as capital gains. The dividend treatment applied only to buybacks between 1 October 2024 and 31 March 2026.

Who is a small shareholder in a buyback?

A shareholder whose holding in the company was worth ₹2 lakh or less on the record date. Fifteen per cent of a tender offer is reserved for this category.

What happens to shares that are not accepted?

They are released back to your demat account after the offer is settled. You can then hold or sell them.

Can I tender more shares than my entitlement?

Yes. The extra shares are accepted only if other shareholders in your category tender fewer shares than they are entitled to.

Do I need to do anything in an open-market buyback?

No. The company buys on the exchange, so you simply sell your shares in the market as usual. Your sale may or may not be matched with the company’s order.

Sources

• Memorandum explaining the provisions in the Finance Bill, 2026: taxation of buyback of shares — Ministry of Finance (checked 16 Sep 2026)
• Memorandum explaining the provisions in the Finance (No. 2) Bill, 2024: buyback and capital gains rates — Ministry of Finance (checked 16 Sep 2026)
• Re-introduction of open market buy-back through stock exchange: board memorandum — SEBI (checked 16 Sep 2026)
• SEBI (Buy-Back of Securities) (Amendment) Regulations, 2026 — SEBI (checked 16 Sep 2026)
• Buy-backs: changed rules — Acuity Law (checked 16 Sep 2026)
• Infosys buyback 2025: guide for shareholders — ICICI Direct (checked 16 Sep 2026)
• Infosys buyback 2025: acceptance and small-shareholder reservation — Kotak Neo (checked 16 Sep 2026)