Indian companies are increasingly favouring share buybacks as a strategic payout mechanism, spurred by recent tax reforms that make them more attractive for non-promoter shareholders and a dip in stock valuations.
Key Points
- Share buybacks are experiencing a resurgence among Indian companies due to recent tax framework changes.
- The Finance Act, 2026, effective April 1, taxes gains from buybacks as capital gains for shareholders, replacing the less appealing "deemed dividend" approach.
- This shift makes buybacks significantly more tax-efficient for non-promoter shareholders, prompting companies like Wipro and Aurobindo Pharma to announce repurchase plans.
- Subdued buyback activity in the past two years is expected to reverse, with experts anticipating continued momentum, especially in volatile markets.
- The Securities and Exchange Board of India's proposal to reintroduce open-market buybacks could further boost this trend, offering companies greater flexibility.
Share buybacks are making a comeback in India, with a clutch of companies announcing repurchase plans this month.
The trend signals a shift in corporate payout strategies following recent changes to the tax framework and a fall in stock prices, experts said.
Wipro, Aurobindo Pharma, and Cyient are among half a dozen companies that have proposed share repurchase programmes so far this month, typically a period when companies distribute their final dividends.
Tax Reforms Drive Buyback Revival
The revival in buybacks follows the recast in taxation under the Finance Act, 2026, which came into effect on April 1.
Under the new regime, gains are taxed as capital gains in the hands of shareholders, replacing the earlier "deemed dividend" approach that had dented their appeal.
"The recent surge in buyback announcements is largely driven by tax rationalisation," said Hitesh Sawhney, partner at Price Waterhouse & Co LLP.
"The shift back to capital gains taxation makes buybacks meaningfully more tax-efficient for non-promoter shareholders, prompting companies to revisit such programmes."
Buyback activity had remained subdued over the past two years.
In 2025-26, 16 companies repurchased shares worth Rs 19,500 crore, according to Prime Database.
In 2024-25, the total stood at Rs 8,034 crore — sharply lower than Rs 50,750 crore in 2023-24, when the tax regime was more favourable.
The taxation of buybacks has undergone three sharp shifts in recent years.
Until September 2024, companies paid a buyback distribution tax, while shareholders were exempt.
This changed in October 2024, when proceeds were taxed as dividends in shareholders’ hands at slab rates, pushing effective tax rates for some investors above 40 per cent and curbing activity.
Impact on Shareholders and Market Conditions
"For most non-promoter shareholders, the shift is from full slab-rate taxation to capital gains rates, which are typically lower and can be optimised through loss set-offs," Sawhney said.
"Promoters, however, face a higher effective rate designed to align their tax burden with regular income levels, limiting arbitrage."
Market conditions may also be aiding the revival.
On a year-to-date basis, the Nifty 50 is down nearly 8 per cent, while the IT index has declined about 23 per cent, making buybacks an attractive option for cash-rich firms.
Beyond tax efficiency, buybacks can also be used to signal that companies view their stocks as undervalued.
"The resurgence of buybacks as a shareholder reward mechanism is likely to continue, particularly in volatile markets and where companies seek to improve metrics such as earnings per share and return on equity," said Aditya Prasad, partner at Cyril Amarchand Mangaldas.
"With limited growth projects, firms prefer buybacks over hoarding cash, lifting earnings per share.
"Recent announcements reflect confidence in core business strength and signal to markets that shares are cheap.
"Buybacks also counter foreign outflows and market volatility stemming from global events," added Alay Razvi, managing partner, Accord Juris.
Future Outlook and Regulatory Changes
While dividends remain a mainstay for income-focused investors, analysts expect buybacks to gain traction as well.
"Buybacks will complement, not replace, dividends, given their inherent limitations on size, frequency, and capital deployment," observed Prasad.
Further momentum could come from the Securities and Exchange Board of India’s proposal to reintroduce open-market buybacks.
This would allow companies to acquire shares gradually, instead of through fixed-price tender offers, offering greater flexibility and helping support share prices during volatile periods.
"The open-market route, before its phased withdrawal, was a popular method for executing buybacks," Prasad said.
"With tax rules turning favourable, a well-designed framework could act as an additional tailwind," added Sawhney.
