3.19What is a buyback?
Time-sensitive: Buyback taxation as of November 2026: capital gains treatment for shareholders from FY 2026-27, per Budget 2026. Rules and rates change, so check the official source before acting.
1What is it?
A buyback is when a company buys its own shares from shareholders, usually at a price above the market price.
2Why does it exist?
It returns surplus cash to shareholders, reduces the number of shares (so each remaining share owns more profit) and signals management confidence.
3Stock market example
Companies like TCS and Infosys have done several buybacks. In a tender offer, you submit shares and the company accepts a portion (acceptance ratio).
4Calculation
EPS after buyback = Profit ÷ Fewer shares
- Profit ₹1,000 cr, shares 100 cr → EPS ₹10.
- Company buys back 5 cr shares → 95 cr left.
- EPS = 1,000 ÷ 95 ≈ ₹10.53.
EPS rises about 5% with no change in profit.
5Risks
- Not all your shares may be accepted.
- Buyback tax rules keep changing. From 1 October 2024 buyback money was taxed as dividend; from FY 2026-27 (Budget 2026) it is taxed as capital gains for shareholders (STCG/LTCG by holding period), with a higher effective rate for promoters.
6Quick revision
- Buyback = company buys its own shares.
- Usually at a premium.
- Raises EPS by reducing shares.
7Knowledge check
Q1. Why does EPS rise after a buyback?Show answer
The same profit is divided over fewer shares.
Q2. Is every share you tender guaranteed to be accepted?Show answer
No, depends on the acceptance ratio.
Q3. Name an Indian company known for buybacks.Show answer
TCS or Infosys.
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