Quick Answer
A private or public company in India can buy back its own shares under Section 68 of the Companies Act, 2013, up to 25% of its aggregate paid-up capital and free reserves in a financial year. The company must act within prescribed resolution requirements, debt-equity limits and post-buyback restrictions, and file Form SH-9, Form SH-8 and Form SH-11 at the relevant stages.
A share buyback lets a company purchase its own shares from existing shareholders, reduce its share capital, and return surplus funds without a public listing or an external buyer. Promoters use it to consolidate ownership. Boards use it to give investors or ESOP holders an exit. Either way, the Companies Act, 2013 sets firm limits on how much a company can buy back, who must approve it, and what happens afterward.
This guide sets out those limits, the resolution and filing requirements, the step-by-step procedure with forms, and the mistakes that commonly delay or invalidate a buyback.
Buyback vs capital reduction vs share transfer: what is the difference?
Founders often confuse a buyback with a capital reduction or a straightforward share transfer. The three serve different purposes and trigger different approvals.
Aspect | Buyback (Section 68) | Capital reduction (Section 66) | Share transfer |
Purpose | Company repurchases its own shares to return surplus funds or give an exit | Company reduces its share capital, often to write off losses or restructure | Ownership of existing shares changes hands between parties |
Approval | Board resolution or special resolution, depending on the limit | Special resolution and confirmation by the National Company Law Tribunal (NCLT) | Board approval under the articles; private companies may restrict transfer |
Tax angle (general) | For buybacks completed on or after 1 October 2024, the amount received by the shareholder is treated as dividend income under Section 2(22)(f) of the Income-tax Act, 1961, taxable as income from other sources at the applicable slab rate; the shareholder’s cost of acquisition is treated as a capital loss under Section 46A, available for set-off against capital gains | Amount received may be treated as deemed dividend under Section 2(22)(d) of the Income-tax Act, 1961, to the extent of accumulated profits, with the balance taxed as capital gains | Capital gains tax applies to the transferor under Section 45 of the Income-tax Act, 1961 |
Effect on capital | Reduces paid-up capital and free reserves | Directly reduces capital, subject to NCLT sanction | No change to the company’s capital; only ownership changes |
Choose a buyback if the company wants to return cash efficiently while reducing the share count. Choose a capital reduction if the company needs NCLT-sanctioned restructuring, such as writing off accumulated losses. Choose a share transfer if ownership needs to change without touching the company’s capital at all.
What are the conditions and limits for a buyback of shares?
Section 68 of the Companies Act, 2013 sets the authority, approval route and financial limits a company must satisfy before it buys back shares.
Requirement | Condition |
Authority | The articles of association must authorise the buyback. If they do not, the company must first alter the articles by special resolution. |
Resolution | A board resolution authorises a buyback of up to 10% of the aggregate paid-up equity capital and free reserves. A special resolution is required for a buyback exceeding 10%, up to the overall 25% limit. |
Overall limit | The buyback in a financial year cannot exceed 25% of the aggregate paid-up capital and free reserves of the company. |
Equity-specific limit | The buyback of equity shares in a financial year cannot exceed 25% of the paid-up equity capital in that year. |
Debt-equity ratio | After the buyback, the ratio of the company’s secured and unsecured debt to paid-up capital and free reserves cannot exceed 2:1, subject to the exceptions prescribed for specified classes of companies. |
Post-buyback restriction | No fresh issue of the same kind of securities is permitted within 6 months of completing the buyback, other than a bonus issue, conversion of warrants, or shares issued under an employee stock option scheme. |
Cooling-off period | The company cannot undertake another buyback within 1 year from the date of closure of the preceding buyback. |
Share condition | Only fully paid-up shares are eligible for buyback. |
Breaching any of these conditions, including a miscalculation of free reserves, puts the entire buyback at risk of being treated as non-compliant with Section 68.
What is the procedure for buyback of shares, and which forms apply?
A private or public company buying back shares under Section 68 generally follows these steps:
- Confirm authority under the articles. Check that the articles of association permit a buyback. If they do not, pass a special resolution to amend the articles first.
- Determine the applicable resolution. Pass a board resolution for a buyback of up to 10% of the paid-up equity capital and free reserves, or convene a general meeting to pass a special resolution for a buyback above 10%, up to the 25% ceiling.
- File the declaration of solvency. Before making the buyback offer, file Form SH-9, verified by affidavit and signed by at least two directors (one being the managing director, where the company has one), with the Registrar of Companies.
- Dispatch the letter of offer. Send Form SH-8, the letter of offer, to all eligible shareholders no later than 20 days from filing it with the Registrar of Companies, setting out the buyback price, size and timeline.
- Open the offer and verify acceptances. The offer must remain open for not less than 15 days and not more than 30 days from the date of dispatch of the letter of offer. The company must complete verification of offers received within 15 days from the date of closure of the offer. Shares tendered are deemed accepted unless a communication of rejection is made within 21 days from the date of closure of the offer.
- Complete payment and extinguish the shares. Within 7 days of the verification period under Rule 17 of the Companies (Share Capital and Debentures) Rules, 2014, pay the consideration in cash to shareholders whose shares are accepted, or return share certificates to those whose shares were not accepted. The bought-back shares must then be extinguished and physically destroyed.
- File the return of buyback. File Form SH-11 with the Registrar of Companies, along with a certificate in Form SH-15 signed by two directors confirming compliance, within 30 days of the completion of the buyback.
Costs for carrying out a buyback depend on the size of the transaction and the company’s structure. Altacit Global provides a quote on request.
Who benefits from a share buyback?
A buyback serves several distinct purposes for promoters, investors and the company itself:
- Exiting investors or ESOP holders get liquidity without waiting for a public listing or finding an external buyer.
- Promoters can consolidate their shareholding and strengthen control over the company.
- The company returns surplus cash to shareholders efficiently, which can improve earnings per share once the share count falls.
- Minority shareholders who choose not to participate retain a proportionally larger stake after the buyback completes.
What mistakes should companies avoid during a buyback?
- Skipping the articles check. Proceeding with a buyback before confirming or amending the articles under Section 68(2)(a) invalidates the process.
- Miscalculating the 25% limit. Errors in computing free reserves or paid-up capital lead to buybacks that exceed the statutory ceiling.
- Missing the solvency declaration. Failing to file Form SH-9 before making the offer is a direct breach of Section 68(6).
- Ignoring the debt-equity ratio. A buyback that pushes the post-buyback debt-equity ratio beyond 2:1 does not comply with Section 68(2)(d).
- Repeating a buyback too soon. Initiating another buyback within 1 year of closing the previous one breaches the statutory cooling-off period.
- Overlooking the current tax treatment. For buybacks under Section 68 completed on or after 1 October 2024, the Finance Act, 2024 shifted the tax from the company to the shareholder. The full amount received is treated as dividend income under Section 2(22)(f) of the Income-tax Act, 1961, taxable as income from other sources at the shareholder’s applicable slab rate. Companies and shareholders should factor this treatment into pricing and planning before the offer is dispatched.
Before starting a buyback, it also helps to confirm that the company’s broader ROC filings are current. Our guide on Corporate Compliance in India: Annual Requirements for Every Company (2026) sets out the filing calendar every company needs to track. If the buyback is also designed to resolve a shareholder exit, our guide on Shareholders Agreement in India: What It Is and Why Every Company Needs One explains how exit and buyback clauses typically work together.
Plan your share buyback with confidence
A share buyback under Section 68 gives a company a structured way to return capital or give an investor an exit, but the resolution requirements, the 25% ceiling, the debt-equity limit and the Form SH-9, SH-8 and SH-11 filings all need to be sequenced correctly. Missing any one of them puts the buyback at risk.
If your company, as a promoter, board or investor, is considering a buyback, contact Altacit Global at info@altacit.com. We will review your capital structure and shareholding pattern and provide a quote on request.
Frequently asked questions
Q1: What is a share buyback?
A share buyback is a process under Section 68 of the Companies Act, 2013, in which a company purchases its own shares from existing shareholders, reducing its outstanding share capital.
Q2: How much can a company buy back?
A company can buy back up to 25% of its aggregate paid-up capital and free reserves in a financial year, with equity share buybacks separately capped at 25% of the paid-up equity capital for that year.
Q3: What is the procedure for buyback of shares?
The company confirms authority under its articles, passes a board or special resolution depending on the size of the buyback, files Form SH-9 (declaration of solvency), sends Form SH-8 (letter of offer) to shareholders, completes the offer and payment, then files Form SH-11 (return of buyback) with the Registrar of Companies.
Q4: Is a buyback the same as a capital reduction?
No. A buyback under Section 68 lets the company repurchase its own shares through a board or special resolution. A capital reduction under Section 66 requires NCLT confirmation and is typically used to restructure capital or write off accumulated losses.
Q5: Which forms are filed for a buyback?
A company files Form SH-9 (declaration of solvency) before the offer, Form SH-8 (letter of offer) to shareholders, and Form SH-11 (return of buyback) with the Registrar of Companies after completion.
