Buyback Tender Offer vs Open Market Buyback: Mechanics and Shareholder Impact Explained

Between 2022 and 2025, SEBI spent three years systematically dismantling one of the two ways Indian companies could buy back their own shares, cutting the permitted size of open market buybacks through stock exchanges from 15% down to 10%, then 5%, then zero, before banning the route outright from April 1, 2025.

On June 19, 2026, the regulator approved bringing it back, effective August 1, 2026. It did not change its mind about the problem that got the route banned in the first place. A completely separate area of law, tax policy, quietly fixed that problem instead.

For a shareholder trying to understand a buyback offer today, this matters beyond the history. The answer to a simple question, what happens to my shares and what do I owe tax on if I participate, has changed more than once in under two years, and depends on which of two genuinely different mechanisms a company uses and exactly when the transaction happens.

A tender offer buyback is a fixed price, fixed quantity offer made proportionately to every shareholder at once. The company announces a price, usually at a meaningful premium to the market, a maximum number of shares it will buy, and a record date. Every eligible shareholder gets a guaranteed right to tender a proportionate share of their holding, whether they act on it or not.

An open market buyback works completely differently: the company buys shares directly through the stock exchange, at prevailing market prices up to a ceiling it sets, matched through the exchange's ordinary price time priority mechanism, the same system that matches any other buy and sell order.

There is no record date for sellers, no guaranteed proportionate entitlement, and no certainty that any specific shareholder's sell order will actually be matched during the buyback window.

Wipro's tender offer buyback, the largest in the company's history, illustrates the mechanics concretely. The record date was June 5, 2026, and the tender window ran from June 11 to June 17. The company offered to buy back shares at Rs 250 each, against a market price around Rs 203 at the time, a premium of close to 23%.

The buyback size was structured at just under 25% of standalone paid up capital and free reserves, the threshold above which a special resolution requiring shareholder approval, rather than a board resolution alone, becomes necessary.

Any shareholder holding Wipro shares on the record date became eligible to tender a proportionate share of their holding at the fixed Rs 250 price, regardless of whether they had held the shares for years or bought them just before the record date, provided the purchase settled in time under India's T plus one settlement cycle.

SEBI's Buyback Regulations reserve 15% of every tender offer specifically for small shareholders, defined as anyone holding shares worth Rs 2 lakh or less, based on the closing price on the exchange with the higher trading volume that day, as of the record date. Holdings across multiple demat accounts under the same PAN are combined for this purpose, so a shareholder cannot split holdings across accounts to qualify multiple times.

Within each category, small shareholder and general, the company calculates an entitlement ratio: the number of shares being bought back from that category divided by the total shares held by everyone in it. A shareholder's actual entitlement is simply their own holding multiplied by that ratio.

The number that actually determines the outcome, though, is the acceptance ratio, not the entitlement ratio. A shareholder can tender more shares than their entitlement, and how many of those extra shares actually get accepted depends on how many other shareholders in the same category also over tender relative to what the company is buying.

Because the small shareholder category is reserved a guaranteed 15% of the total offer regardless of how few small shareholders exist relative to the general category, small shareholders typically see a meaningfully higher acceptance ratio than institutional or large individual holders participating in the general category, a structural advantage built directly into the regulation.

The stock exchange based open market route was phased out because it structurally favoured shareholders who could act fastest and had the best market access over those who were patient but less connected to real time trading. Since orders were matched through ordinary price time priority, a shareholder who wanted to participate but whose order simply never matched during the buyback window ended up with nothing, while another shareholder, selling the identical stock on the identical day, might get bought back in full purely due to order timing.

Under the tax rules that applied before October 2024, this mattered enormously: the company paid a buyback tax of its own, and shareholders whose shares were actually bought back received that money entirely tax free, while a shareholder who could not get matched and instead sold in the ordinary market paid full capital gains tax on an economically identical transaction. SEBI concluded this was not a market mechanism it could defend and discontinued the route entirely.

SEBI's board approved reintroducing the stock exchange route on June 19, 2026, with the amended regulations notified on July 1, 2026, and the route itself becoming available from August 1, 2026. The reintroduced version carries meaningfully tighter conditions than the one that was banned.

Condition	Detail
Maximum size	Capped at 15% of paid up capital and free reserves; larger buybacks must use the tender offer route instead
Opening timeline	Must open within 4 working days of the public announcement
Completion timeline	Must be completed within 66 working days of opening, considerably shorter than the earlier open ended timeline
Front loading requirement	At least 40% of the earmarked amount must be utilised in the first half of the buyback period, and at least 75% by the end
Merchant banker	Appointment is now optional rather than mandatory, reducing compliance cost
Promoter shares	Frozen at the ISIN level from approval until closure, unless promoters choose to participate by tendering in a tender offer instead
Minimum public shareholding	A buyback cannot proceed if it would cause the company to breach minimum public shareholding requirements

SEBI's own reasoning for the reversal is unusually explicit about what changed. Once buyback proceeds are taxed on a basis broadly similar to an ordinary market sale, a shareholder whose shares get matched in an open market buyback and a shareholder who simply sells the same stock in the secondary market on the same day face essentially the same tax outcome.

The specific unfairness that justified banning the route, a meaningfully better tax result purely for shareholders lucky enough to get matched, stops being a meaningful unfairness once both paths are taxed alike.

SEBI did not change its mind about fairness. The tax code changed the facts on the ground, and the regulator responded to the new facts.

Three Tax Regimes in Eighteen Months

The tax treatment of buyback proceeds has genuinely changed three times in a short span, and it is worth being precise about which rule applied when, since older descriptions of buyback taxation still circulating are now out of date.

Period	Who Bears the Tax	Treatment
Before October 1, 2024	The company	Company paid buyback tax at an effective rate of roughly 23.3%; proceeds received by shareholders were exempt from tax
October 1, 2024 to March 31, 2026	The shareholder	Entire buyback proceeds treated as deemed dividend, taxed at the shareholder's income slab rate
From April 1, 2026	The shareholder	Proceeds taxed as capital gains: 12.5% if held more than 12 months, 20% if held 12 months or less, with an additional tax component specifically for promoter shareholders

The most recent shift, treating buyback proceeds as capital gains rather than deemed dividend, is what specifically enabled the reintroduction of the open market route, since it puts a buyback seller and an ordinary secondary market seller on comparable tax footing for the first time in years. The additional tax component applied to promoter shareholders specifically targets a separate concern: preventing promoters from using buybacks as a lower tax substitute for dividends in a way ordinary shareholders cannot replicate.

Under the old rule, the shareholder who got matched paid no tax at all. The shareholder who did not, and sold the same stock the same day in the ordinary market, paid full capital gains tax. That gap is what actually got the route banned.

A few practical habits follow from how these two mechanisms and the current tax rule actually interact:

• Check which route a specific company is using. A tender offer guarantees every eligible shareholder a proportionate entitlement; an open market buyback offers no such guarantee, even after it returns in August 2026.

• If participating in a tender offer, check whether your holding qualifies for the small shareholder reservation, since the acceptance ratio in that category is typically meaningfully higher than in the general category.

• Confirm your holding was settled before the record date, given India's T plus one settlement cycle, since buying shares even a day too late can mean missing eligibility entirely.

• Use the current capital gains tax treatment, not an older description of buyback taxation, when estimating what you will actually owe on proceeds from a buyback completed after April 1, 2026.

• Once the open market route returns in August 2026, remember it now carries a 15% size cap, a 66 working day completion window and a front loading requirement, all of which affect how quickly and how much of an announced buyback actually gets executed.

Status as of July 2026

SEBI banned the open market buyback route through stock exchanges from April 1, 2025, and has approved reintroducing it from August 1, 2026, under new conditions. As of today, that route is not yet active; the tender offer route and the book building method remain the only ways to conduct a buyback. Separately, the tax treatment of buyback proceeds has changed twice in the past eighteen months, most recently to a capital gains basis effective April 1, 2026. Check current SEBI circulars and a scheme's own offer document before relying on any specific rule here.

This article is for educational purposes only and does not constitute investment or tax advice. Regulatory conditions, timelines and tax rates described here reflect SEBI regulations and the Income Tax Act as publicly available at the time of writing and are subject to change; the reintroduced open market route described here takes effect August 1, 2026 and its final operational details should be confirmed against SEBI's notified regulations at that time. Readers should consult a SEBI registered investment adviser or tax professional before participating in a buyback.

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