The Corporate Laws (Amendment) Bill, 2026 proposes changes to how companies buy back their own shares. The finance minister introduced it in the Lok Sabha on 23 March 2026, and it went to a Joint Parliamentary Committee. The Committee presented its report on 3 August 2026. The buy-back changes are in Clause 29 of the Bill and amend Section 68 of the Companies Act, 2013. This article sets out what changes, what stays, and what companies should watch.
Meaning of a Buy-Back
A buy-back is when a company buys its own shares from its shareholders. The shares bought back are cancelled, reducing the number of shares held by investors. Companies use buy-backs to return surplus cash to shareholders. Section 68 of the Companies Act, 2013 lays down the conditions for a buy-back. Listed companies must also follow SEBI’s rules.
Background to the Bill
The Bill follows the Company Law Committee’s 2022 report, which identified gaps in the Act. A High-Level Committee on Non-Financial Regulatory Reforms then looked at the recommendations, and former Cabinet Secretary Rajiv Gauba chaired it. The Union Cabinet cleared the Bill before it reached Parliament. The stated aim is to ease the compliance burden on businesses and to decriminalise minor corporate offences.
Where the Bill Stands
The Bill is still a proposal. The latest recorded stage is the Committee report. Parliament has to pass the Bill and the President has to give assent. After that, the Central Government fixes the start date and can set different dates for different provisions. Until the changes are notified, companies must follow the current Section 68.
The Committee backed the Bill and made clause-wise recommendations. Two members of the panel submitted dissent notes, which are attached to the report.
Rules that Apply Today
A company can buy back shares only if its articles allow it. A buy-back of up to 10% of paid-up equity capital and free reserves needs only a board resolution. Larger buy-backs need a special resolution of shareholders. A company can buy back shares up to the prescribed 25% limit. After the buy-back, its debt-equity ratio generally cannot exceed 2:1. The shares must also be fully paid-up. A company also cannot make a new offer within one year of closing the previous one.
Steps in a Buy-Back
A buy-back follows a fixed order. The company passes the board or shareholder resolution. It then files a declaration of solvency, a letter of offer and the other required filings. The buy-back must be completed within one year of the resolution. After paying shareholders, the company extinguishes the bought-back shares within seven days of the last date of completion of the buy-back. Clause 29 does not change these time limits.
A Higher Limit for Prescribed Companies
The Bill keeps 25% as the general limit. For classes of companies that the Government prescribes, a buy-back can go up to a percentage set by the Rules. The Bill names neither the classes nor the percentage. Law firm commentary expects debt-free companies to be among those prescribed, since they carry no creditor risk.
For buy-backs of equity shares, the limit is measured against the company’s total paid-up equity capital in that financial year.
Two Offers in a Year
Today a company must wait a year after one offer closes before it makes the next. The Bill lets prescribed classes of companies make up to two offers within one year, counted from the closure of the preceding offer. The second offer cannot come earlier than six months after the first one closes. The Rules will decide which companies qualify.
Companies Likely to Use the Changes
Committee expects debt-free listed companies in IT, pharma and FMCG to benefit, since they have used frequent buy-backs to return surplus cash and could now make two offers a year. The same Committee says a higher limit may let well-capitalised companies return a larger share of their capital. The Rules will decide who qualifies, so companies with borrowings should wait for them before they plan.
Conditions That Stay
Clause 29 does not amend the debt-equity condition or the rule that shares must be fully paid-up. Directors must still make a declaration of solvency. A company that uses the new flexibility has to meet these conditions in the same way as before.
Affidavit Replaced
Directors currently file a declaration of solvency that must be verified by an affidavit. Clause 29(c) deletes the words about the affidavit. The declaration stays, and only the affidavit goes. The same approach appears elsewhere in the Bill, which replaces certain affidavits with self-declarations.
Share-Linked Pay Schemes
The Act already covers buy-back of shares issued under stock option and sweat equity schemes. The Bill adds schemes linked to the value of the company’s share capital. These may include Restricted Stock Units and Stock Appreciation Rights. Companies with such schemes would be able to buy back the securities issued under them.
Penalties for Default
Today a company that breaks Section 68, and each officer in default, faces a fine of ₹1 lakh to ₹3 lakh. The Bill replaces the fine with a civil penalty. A listed company would pay ₹25 lakh and any other company ₹2 lakh. An officer in default would pay ₹5 lakh in a listed company and ₹2 lakh in any other company.
The change fits a pattern across the Bill, which replaces imprisonment or fines with civil penalties for several offences. The proposed penalty for a listed company is more than twelve times that for any other company.
Unclaimed Buy-Back Money
The Bill also amends Section 125, which deals with the Investor Education and Protection Fund. Money due for shares that were bought back and extinguished, and that stays unclaimed for seven years or more, would go to the Fund. Companies should keep clean records of payments to shareholders after each buy-back.
Tax on Buy-Backs
Tax comes from a separate law. From 1 April 2026, buy-back proceeds are taxed in the shareholder’s hands as capital gains. Before that, the Finance Act 2024 change taxed proceeds as dividend. Promoters pay an additional tax, which gives an effective rate of 22% for promoters that are domestic companies and 30% for other promoters. The additional tax applies only to buy-backs under Section 68, and a 12% surcharge applies to it. Companies planning a buy-back need to read the company law and the tax law together.
Listed Companies and SEBI
Listed companies must also follow SEBI’s buy-back regulations. From 1 August 2026, SEBI’s regulation 4(vii) makes the gap between offers whatever period the Companies Act prescribes. If the Bill is enacted and the Rules apply, a listed company’s gap would follow Section 68. Until then, the one-year gap continues.
Side-by-Side Comparison
The table sums up the changes that Clause 29 proposes.
| Item | Today | Under the Bill |
| Buy-back limit | 25% of paid-up capital and free reserves | 25%, with a higher prescribed percentage for prescribed classes |
| Gap between offers | One year from the closure of the last offer | Up to two offers in one year for prescribed classes, six months apart |
| Declaration of solvency | Verified by affidavit | Declaration stays, affidavit removed |
| Employee schemes | Stock options and sweat equity | Adds schemes linked to share value, such as RSUs and SARs |
| Penalty on a company | Fine of ₹1 lakh to ₹3 lakh | ₹25 lakh if listed, ₹2 lakh otherwise |
Preparing Before the Rules Arrive
Companies can prepare now without changing current practice. They can check that their articles allow buy-backs and review free reserves and the debt-equity ratio. They can keep payment records for every buy-back, since unclaimed amounts may go to the Investor Education and Protection Fund. Finance teams can model the tax result for promoters and other shareholders. Until the clause is notified, boards should keep to the current 25% limit and the one-year gap.
Points to Watch
The Rules come first. They will name the companies that get a higher limit and two offers, and they will set the percentage. Without them, the proposals have no practical effect.
The final text may also differ from the introduced Bill. The summary of the Committee’s key recommendations does not list buy-backs, though Parliament can still amend any clause.
Commencement is the third point. Because provisions can start on different dates, the buy-back clause may begin earlier or later than the rest.
Author: Sarika Aggarwal (Head – Advisory & International Relations)
FAQs
Is the Bill law yet?
No. Parliament has not passed it yet, so the current Section 68 applies.
Can a company buy back more than 25%?
Only if it belongs to a class prescribed by the Rules, and only after the Bill is enacted and the clause is notified.
Can a company make two buy-back offers in a year?
Prescribed classes of companies could. The second offer must come at least six months after the first one closes.
Does the Bill remove the declaration of solvency?
No. It removes only the requirement to verify the declaration by affidavit.
Do shareholders pay tax on buy-back proceeds?
Yes. Since 1 April 2026 the gain is taxed as capital gains. Promoters pay an additional tax.
Will listed companies get the same relief?
Section 68 applies to both. Listed companies must also follow SEBI’s rules, which now tie the gap between offers to the Companies Act.
