How to tender shares in a buyback on Zerodha

A share buyback (or share repurchase) is a corporate action in which a listed company purchases its own shares from existing shareholders, reducing the total shares outstanding. In India, listed companies may conduct buybacks through two routes: the tender offer route (via the exchange’s settlement platform) and the open market route (through the secondary market without shareholder action). This guide covers the tender offer route, which requires shareholders to actively tender shares within the offer period.

Zerodha facilitates tender offer participation through Kite, for which it charges a corporate action order fee of Rs 20 plus GST per order. This guide complements Buyback and tender offers on Zerodha which covers the full regulatory and tax background.

Conflict-of-interest disclosure: WebNotes is an independent information publisher with no commercial arrangement with Zerodha.

Prerequisites

• An active demat account with Zerodha at CDSL.
• Shares of the buyback-issuing company held and settled in the Zerodha demat account on the buyback record date.
• Kite access to submit the tender order.
• Familiarity with the buyback price, offer period, and acceptance ratio disclosed in the company’s Letter of Offer.

Regulatory framework

Tender offer buybacks are governed by the SEBI (Buy-Back of Securities) Regulations, 2018. Key provisions:

• Compulsory tender offer route: If the buyback size exceeds 15% of the company’s total paid-up capital and free reserves, the tender offer route is mandatory.
• Small shareholder reservation: At least 15% of the buyback size is reserved for small shareholders (those holding shares worth up to Rs 2,00,000 on the record date).
• Escrow requirement: The company must deposit 25% of the total buyback consideration in escrow before the offer opens.
• Exchange settlement: NSE Clearing Limited (NCL) and Indian Clearing Corporation Limited (ICCL) on BSE handle settlement via the exchange platform.

Step-by-step: tendering shares in a buyback on Zerodha

Step 1: Confirm record date eligibility

Check the company’s Letter of Offer and exchange announcements for the buyback record date. Shares must be settled in the demat account by end of day on the record date. Under T+1 settlement, the last trading day to purchase and be eligible is one trading day before the record date.

Step 2: Determine your shareholder category

The buyback LoF specifies two categories:

• Small shareholder category: Shareholders whose holdings on record date are worth Rs 2,00,000 or less. At least 15% of buyback size is reserved for this category.
• General category: All other eligible shareholders.

Retail investors near the Rs 2,00,000 threshold should verify their category in the LoF before tendering.

Step 3: Access the buyback section on Kite

1. Log in to Kite at kite.zerodha.com.
2. Navigate to “Corporate Actions” (visible only when an eligible buyback is active for your holdings during the offer period).
3. Select the relevant buyback offer.

Step 4: Enter the quantity to tender

1. The platform displays your eligible quantity (shares held on record date). You cannot tender more than the eligible quantity.
2. Enter the number of shares to tender. You may tender a portion of your eligible quantity.
3. Note: tender orders cannot be withdrawn after submission under current SEBI regulations.

Step 5: Submit the tender order

1. Review the details: share name, quantity, buyback price, and the Rs 20 plus GST Zerodha fee.
2. Submit the order. Zerodha routes it to the exchange’s buyback platform.
3. The tendered shares are blocked (encumbered) in your CDSL demat account. You cannot sell these shares during the offer period.
4. Retain the order confirmation number.

Step 6: Await the acceptance ratio

After the offer period closes, the exchange and clearing corporation process the acceptance:

• The acceptance ratio is calculated: total shares accepted divided by total shares tendered in each category.
• If oversubscribed, accepted shares are determined pro-rata within each category.
• If the small shareholder category is undersubscribed, the unsubscribed portion transfers to the general category.

Step 7: Settlement

• Accepted shares are transferred from your demat account to the company.
• The buyback consideration (accepted quantity multiplied by buyback price) is credited to your Zerodha trading account.
• Settlement typically occurs within 2 to 5 working days after the offer period closes.
• Unaccepted shares are released from the block and return to your free holdings.

Acceptance ratio expectations

Retail investors with holdings below Rs 2,00,000 on record date benefit from the reserved small shareholder category, typically yielding a higher acceptance ratio.

Open market buyback: no action needed

If the company conducts an open market buyback (purchasing shares from the secondary market), no action is required from the shareholder. Shareholders wishing to sell may do so via a normal CNC sell order on Kite at the prevailing market price. Zerodha does not facilitate any special order for open market buyback participation.

What can go wrong

Missed the offer window: Buyback offer periods are fixed (typically 10 to 15 working days). There is no extension; missed deadlines mean no participation.

Bought shares after record date: Shares purchased after the record date are not eligible for the current buyback, even if held before the offer closes.

Tendered shares cannot be sold: Once blocked, shares cannot be sold until released post-buyback. If the market price rises significantly above the buyback price, there is an opportunity cost.

Corporate action fee charged regardless of acceptance: The Rs 20 plus GST fee is charged for order submission, not acceptance. The fee is not refunded if shares are partially or fully unaccepted.

Tax treatment (post-Finance Act 2024)

Changed framework from 1 October 2024

The Finance (No. 2) Act, 2024 abolished Buyback Distribution Tax (BDT) under Section 115QA for listed companies with effect from 1 October 2024.

Before 1 October 2024: The company paid BDT at 23.296%. Shareholders received buyback proceeds tax-free under Section 10(34A).

From 1 October 2024 onwards: Buyback proceeds are taxable in shareholders’ hands as capital gains. The buyback price is the sale consideration. The cost of acquisition is the original purchase price.

Capital gains tax rates:

• STCG (held 12 months or less): 15% under Section 111A.
• LTCG (held more than 12 months): 10% on gains above Rs 1 lakh under Section 112A.

STT is applicable. For pre-January 2018 acquisitions, the grandfathering rule applies.

Related guides

• Buyback and tender offers on Zerodha
• How to tender shares in an open offer on Zerodha
• How to participate in an OFS on Zerodha
• Zerodha corporate action charges
• Capital gains tax in India
• Securities transaction tax
• Grandfathering rule for LTCG

References

1. SEBI (Buy-Back of Securities) Regulations, 2018.
2. Finance (No. 2) Act, 2024, amendment to Section 115QA abolishing BDT on listed company buybacks.
3. Income Tax Act, 1961, Sections 10(34A) (pre-amendment), 111A, 112A.
4. SEBI Circular SEBI/HO/CFD/DIL2/CIR/P/2016/56, exchange-based tender offer platform.
5. NSE Clearing Limited, tender offer settlement guidelines.
6. Zerodha support, buyback tender order submission on Kite.