By Anuj Singh | Updated March 2026
What Is Share Buyback, Transfer & Transmission?
These three concepts govern how shares change hands in Indian companies. A share buyback is when a company repurchases its own outstanding shares from shareholders, reducing total shares in circulation. It is governed by Sections 68–70 of the Companies Act, 2013 and, for listed companies, the SEBI (Buy-Back of Securities) Regulations, 2018 (last amended November 28, 2024). A share transfer is the voluntary transfer of ownership from one person to another — by sale, gift, or other arrangement — governed by Section 56 of the Companies Act, 2013. A share transmission is the automatic passage of shares by operation of law — typically on death, insolvency, or inheritance — governed by Section 72 of the Companies Act, 2013.
For foreign investors in India, these provisions intersect with FEMA regulations, RBI pricing norms, and FC-TRS reporting requirements. A Singapore-based parent wanting to buy back shares of its Indian subsidiary, or a foreign promoter transferring shares to a new investor, must navigate both Companies Act procedures and FEMA compliance simultaneously. Getting the sequence wrong — for example, recording a transfer before FC-TRS acknowledgement — is a FEMA violation that triggers compounding proceedings.
Legal Basis
- Section 68 of the Companies Act, 2013 — Empowers companies to purchase their own shares or specified securities from free reserves, securities premium account, or proceeds of an earlier share issue. Sets the 25% ceiling and 2:1 debt-equity limit.
- Section 69 of the Companies Act, 2013 — Requires the company to transfer the nominal value of bought-back shares to a Capital Redemption Reserve Account when the buyback is funded from free reserves or securities premium.
- Section 70 of the Companies Act, 2013 — Prohibits buyback if the company has defaulted on repayment of deposits, debentures, dividends, or term loan repayments (unless the default is remedied and 3 years have elapsed).
- Section 56 of the Companies Act, 2013 — Governs transfer and transmission of securities. Requires execution of Form SH-4 (instrument of transfer), delivery within 60 days, and board registration.
- Section 72 of the Companies Act, 2013 — Allows holders to nominate any person to whom securities vest upon death, ensuring transmission without probate or succession certificate.
- SEBI (Buy-Back of Securities) Regulations, 2018 — Applies to listed companies. Open market buyback through stock exchanges was phased out and completely eliminated from April 1, 2025. Only the tender offer route remains.
- Finance Act (No. 2), 2024 — Abolished Section 115QA (company-level buyback tax at 20% plus surcharge) effective October 1, 2024. Buyback proceeds are now deemed dividends under Section 2(22)(f), taxable in shareholders' hands.
- FEMA (Non-Debt Instruments) Rules, 2019 — Requires FC-TRS filing within 60 days for any share transfer between residents and non-residents, with pricing at fair market value per RBI norms.
Share Buyback: Methods, Limits & Conditions
Methods of Buyback
Under the Companies Act, a company can buy back shares from existing shareholders on a proportionate basis. For listed companies under SEBI regulations, the only permitted route from April 1, 2025 onward is the tender offer. The open market (stock exchange) route was phased out gradually — capped at 15% of paid-up capital and free reserves until March 31, 2023, then 10% until March 2024, 5% until March 2025, and fully eliminated thereafter. The odd-lot buyback route was also eliminated by the SEBI (Buy-Back of Securities) (Amendment) Regulations, 2023.
Statutory Limits
| Parameter | Limit | Legal Reference |
|---|---|---|
| Maximum buyback in a financial year | 25% of paid-up equity share capital | Section 68(2)(c) |
| Maximum aggregate buyback | 25% of paid-up capital + free reserves | Section 68(2)(b) |
| Post-buyback debt-equity ratio | Maximum 2:1 (debt to paid-up capital + free reserves) | Section 68(2)(d) |
| Board resolution buyback limit | Up to 10% of paid-up capital + free reserves | Section 68(2) proviso |
| Special resolution buyback limit | Up to 25% of paid-up capital + free reserves | Section 68(2)(b) |
| Completion deadline | Within 1 year of resolution | Section 68(4) |
| Cooling-off period (same class) | 6 months — no fresh issue of same class | Section 68(8) |
| Gap between two buybacks | Minimum 1 year from closure of previous buyback | Section 68(2) |
Conditions and Restrictions
Only fully paid-up shares are eligible for buyback. The company must file a declaration of solvency (Form SH-9), signed by at least two directors, affirming it can meet liabilities and will not face insolvency within one year. Under Section 70, buyback is prohibited if the company has defaulted on repayment of deposits, interest on deposits, redemption of debentures or preference shares, payment of dividend, or repayment of term loans — unless the default has been remedied and 3 years have elapsed.
A separate bank account must be opened for the buyback. Shares bought back must be destroyed within 7 days of completion, and Form SH-11 must be filed with the Registrar within 30 days. The company must also file MGT-14 (INR 600 filing fee) for the resolution.
SEBI Tender Offer Process (Listed Companies)
Under the 2023 amended SEBI regulations, the tender offer process operates on a compressed timeline: the letter of offer is dispatched within 2 working days of the record date, tendering opens within 4 working days, the tendering period runs for 5 working days (reduced from 10), and verification plus payment must be completed within 5 working days after tendering closes. Companies must deposit the escrow amount within 2 working days of public announcement and must utilize at least 75% of earmarked buyback funds.
Share Transfer: Process Under Section 56
Share transfer is the voluntary conveyance of shares from one person (transferor) to another (transferee). The process for transferring shares in a private limited company or public limited company follows a defined sequence.
Steps and Documentation
- Execute Form SH-4 (Securities Transfer Form) — must be signed by both transferor and transferee, stamped with adequate stamp duty, and dated
- Pay stamp duty — 0.25% of consideration or market value (whichever is higher) for physical shares; 0.015% for demat shares
- Submit to company — Form SH-4 must reach the company within 60 days of execution, accompanied by the original share certificate or letter of allotment
- Board approval — the board registers the transfer if documentation is in order. For partly paid shares, the company must give 2 weeks' notice to the transferee before registering
- Issue new share certificate — within 1 month of registration
Penalty for non-compliance: INR 50,000 on the company and every officer in default.
Mandatory Dematerialization
Under the Companies (Prospectus and Allotment of Securities) Rules, effective September 30, 2024, all non-small private limited companies must hold and transfer shares in dematerialized form only. The MCA extended the Rule 9B application deadline to June 30, 2025 (Notification G.S.R. 125(E) dated February 12, 2025). This means physical share certificates and Form SH-4 in paper form are being phased out for most companies.
FEMA Implications: FC-TRS for Cross-Border Transfers
When shares of an Indian company are transferred between a resident and a non-resident (in either direction), Form FC-TRS must be filed through the RBI's FIRMS portal within 60 days of the transfer or receipt/remittance of funds, whichever is earlier. The transfer must comply with FDI pricing guidelines — the price cannot be below fair market value (for transfers from resident to non-resident) or above fair market value (for transfers from non-resident to resident). A Chartered Accountant's fair value certificate using DCF or NAV methodology is mandatory.
Critical rule: the company must record the share transfer in its register of members only after receiving FC-TRS acknowledgement from the AD Bank. Recording the transfer before acknowledgement is a FEMA violation exposing the company to penalties under Section 13 of FEMA, including compounding proceedings.
Share Transmission: Section 72 and Operation of Law
Transmission differs fundamentally from transfer — it occurs by operation of law, not by voluntary act. The most common trigger is the death of a shareholder. No instrument of transfer (Form SH-4) is required, and no stamp duty is payable.
With Nomination (Section 72)
If the deceased shareholder had filed a nomination with the company, the nominee is entitled to all rights in the securities to the exclusion of all other persons — including legal heirs (unless challenged in court). The nominee submits a transmission request with the death certificate and the company registers the transmission. This is the fastest route, often completed within 30 days.
Without Nomination
Where no nomination exists, the legal heir must obtain either:
- A probate of will (if the deceased left a will) — submitted to the company with the death certificate and original share certificate
- A succession certificate from the court (if no will exists) — this involves filing a petition, court verification of heirship, and issuance of the certificate. The process can take 6–12 months.
The company cannot refuse registration if all legal documents are valid. Board approval is procedural, not discretionary.
Tax Treatment of Buybacks: The 2024 Paradigm Shift
The Finance Act (No. 2), 2024 fundamentally changed how buyback proceeds are taxed, effective October 1, 2024. This is one of the most significant changes for shareholders — particularly foreign investors — in recent years.
| Parameter | Old Regime (Before Oct 1, 2024) | New Regime (From Oct 1, 2024) |
|---|---|---|
| Who pays tax | Company — under Section 115QA | Shareholder — as deemed dividend |
| Tax rate | 20% + surcharge + cess (effective ~23.3%) | Shareholder's applicable slab rate (up to 39% for highest bracket) |
| Legal provision | Section 115QA | Section 2(22)(f) — deemed dividend |
| Shareholder exemption | Exempt under Section 10(34A) | Section 10(34A) withdrawn |
| TDS on resident shareholders | Not applicable | 10% under Section 194 |
| TDS on non-resident shareholders | Not applicable | Applicable treaty rate under Section 195 |
| Capital gains treatment | No capital gains event | Consideration deemed NIL under Section 46A proviso — creates capital loss |
| Capital loss carry-forward | Not applicable | 8 assessment years, offset against capital gains only |
The shift has major implications. Under the old regime, a company paid a flat ~23.3% buyback tax and the shareholder received proceeds tax-free. Under the new regime, a high-income shareholder may pay up to 39% on the deemed dividend. The capital loss arising from the deemed-NIL consideration can only be set off against other capital gains — it cannot offset the deemed dividend itself.
How This Affects Foreign Investors in India
Foreign investors face unique complexities across all three transactions:
Buyback
Under the new regime, buyback proceeds received by a foreign shareholder are deemed dividends taxable in India. However, the applicable DTAA between India and the investor's home country determines the effective withholding rate on dividends — typically 10–15% under most treaties, compared to the domestic rate of up to 20% + surcharge. Foreign investors must furnish a Tax Residency Certificate and Form 10F to claim treaty benefits. Without these, TDS is deducted at the higher domestic rate.
Transfer
Any transfer of shares of an Indian company involving a non-resident (as buyer or seller) requires FC-TRS filing within 60 days through the FIRMS portal. Pricing must comply with RBI fair valuation norms — the price floor or ceiling depends on the direction of transfer. Additionally, Form 15CA/15CB certification may be required for the outward remittance of sale proceeds. Transfer pricing scrutiny applies if the transferor and transferee are associated enterprises.
Transmission
When a foreign shareholder dies, transmission to heirs (whether resident or non-resident) must still comply with FEMA if the resulting shareholding pattern changes the resident/non-resident classification of the holding. The heir may need to apply for sectoral cap clearance if the transmission pushes foreign ownership above the permitted limit in a regulated sector.
Common Mistakes
- Recording share transfers before receiving FC-TRS acknowledgement from the AD Bank. Companies often register the transfer in their books immediately after board approval, but under FEMA, the transfer must be recorded only after FC-TRS acknowledgement. This sequencing error is a FEMA violation that triggers compounding proceedings with the RBI.
- Assuming the old buyback tax regime still applies and not deducting TDS. Since October 1, 2024, the company must deduct TDS at 10% on buyback proceeds paid to resident shareholders and at treaty rates for non-residents. Failure to deduct TDS exposes the company to interest under Section 201(1A) at 1.5% per month.
- Exceeding the 25% buyback limit by calculating on standalone financials when consolidated is lower. For listed companies, SEBI requires the 25% limit to be calculated on the lower of standalone or consolidated paid-up capital and free reserves. Companies that use only standalone numbers may inadvertently breach the limit.
- Not filing a declaration of solvency before the buyback, or filing it with insufficient signatories. Section 68 requires the solvency declaration (Form SH-9) to be signed by at least two directors and filed with both the Registrar and SEBI (for listed companies). A missing or improperly signed declaration can invalidate the entire buyback.
- Ignoring the 1-year cooling-off period between buybacks. A company cannot commence a new buyback within 1 year of the closure date of the previous buyback. Companies that run multiple capital return programs sometimes overlook this restriction, resulting in the second buyback being void.
Practical Example
TechBridge Pte Ltd, a Singapore-based holding company, owns 60% of TechBridge India Pvt Ltd (an Indian subsidiary with paid-up capital of INR 2 crore and free reserves of INR 8 crore). In January 2026, TechBridge India decides to buy back shares worth INR 2 crore from all shareholders proportionately.
Step 1 — Verify limits: Total paid-up capital + free reserves = INR 10 crore. Maximum buyback allowed = 25% = INR 2.5 crore. The proposed INR 2 crore buyback is within limits. Post-buyback debt of INR 6 crore against remaining equity of INR 8 crore gives a debt-equity ratio of 0.75:1 — within the 2:1 limit.
Step 2 — Resolution: Since INR 2 crore exceeds 10% of INR 10 crore (INR 1 crore), a special resolution is required (not just a board resolution).
Step 3 — Solvency declaration: Two directors sign Form SH-9 and file with the ROC.
Step 4 — Execution: The company buys back 2,00,000 shares at INR 100 per share. TechBridge Pte Ltd tenders 1,20,000 shares (60% of 2,00,000) and receives INR 1.20 crore.
Step 5 — Tax impact (new regime): The INR 1.20 crore received by TechBridge Pte Ltd is treated as deemed dividend under Section 2(22)(f). Under the India-Singapore DTAA, dividend withholding is capped at 10%. TDS = INR 12 lakh. TechBridge Pte Ltd must furnish a TRC and Form 10F to claim the treaty rate; otherwise, TDS at 20% (INR 24 lakh) applies. The cost of acquisition of the 1,20,000 shares (say INR 60 lakh) becomes a capital loss that can be carried forward for 8 years and set off against future capital gains in India.
Step 6 — Compliance: Shares destroyed within 7 days. Form SH-11 filed within 30 days. Capital Redemption Reserve of INR 2 crore (nominal value) created. No fresh issue of same-class shares for 6 months.
Had TechBridge Pte Ltd instead transferred its shares to a new Indian buyer, it would need to execute Form SH-4, pay stamp duty of 0.25% (INR 30,000 on INR 1.20 crore consideration), file FC-TRS within 60 days, obtain a CA fair value certificate, and ensure the transfer price met RBI pricing norms.
Key Takeaways
- Share buyback in India is capped at 25% of paid-up capital and free reserves, must maintain a post-buyback debt-equity ratio below 2:1, and must be completed within 1 year of the approving resolution
- For listed companies, open market buyback through stock exchanges is no longer permitted from April 1, 2025 — only the tender offer route remains under SEBI regulations
- Since October 1, 2024, buyback proceeds are taxed as deemed dividends in shareholders' hands (not at the company level), with TDS at 10% for residents and treaty rates for non-residents
- Share transfers require Form SH-4, stamp duty (0.25% physical / 0.015% demat), and board registration within prescribed timelines — with FC-TRS mandatory for any transfer involving non-residents
- Share transmission on death bypasses Form SH-4 and stamp duty entirely — nomination under Section 72 is the fastest route, giving the nominee priority over legal heirs
- Foreign investors must sequence FEMA compliance (FC-TRS acknowledgement) before the company records any transfer, and must furnish TRC + Form 10F to claim DTAA benefits on buyback deemed dividends
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