Treasury Shares explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Under the Companies Act, 2013 a company cannot simply buy its own shares and keep them on its books for re-sale. The Act allows its own shares to be bought only through a reduction of capital or a buy-back, and a buy-back ends with the shares being destroyed. This guide reads the Act in the Ministry's consolidated text (last updated 29 July 2022) and the Rules as consolidated in the Ministry's e-book, consulted on 3 October 2026. Later amendments should be checked before you rely on any point.
Section 67(1) says a company limited by shares or by guarantee and having a share capital has no power to buy its own shares unless the resulting reduction of share capital is done under the Act. Section 68 allows a buy-back, but the shares bought back must be extinguished and physically destroyed within seven days of the last date of completion. The Act does not use the term "treasury shares"; Ind AS 32 does, for accounting. Section 19 stops a subsidiary from holding shares in its holding company, with three exceptions.
What the Act says
Section 67(1): no company limited by shares or by guarantee and having a share capital shall have power to buy its own shares unless the consequent reduction of share capital is effected under the provisions of this Act. Section 67(2) separately bars a public company from giving financial assistance, whether by loan, guarantee, security or otherwise, for the purchase of or subscription for its own or its holding company's shares.
Section 67(3) lists what section 67(2) does not apply to:
- lending by a banking company in the ordinary course of its business;
- provision of money under a scheme approved by special resolution, in accordance with the prescribed requirements, for the purchase of or subscription for fully paid-up shares by trustees for the benefit of employees, or by employees;
- loans to employees other than directors or key managerial personnel, up to six months' salary or wages, to buy fully paid-up shares to be held by them by way of beneficial ownership.
If the company contravenes section 67, section 67(5) prescribes a fine and, for every officer in default, imprisonment and fine, as printed there. Contact us if you need to assess an existing arrangement; see our compliance advisory.
Employee trusts: rule 16
Rule 16 of the Companies (Share Capital and Debentures) Rules, 2014 sets the conditions where the company provides money for trustees to buy shares for the benefit of employees. They include:
- approval of the scheme by special resolution in a general meeting;
- purchases through a recognised stock exchange where the company is listed;
- a registered valuer's valuation where the shares are not listed;
- an aggregate limit of five per cent of paid-up capital and the reserves defined in section 2(43) (the Act uses a defined term for them) for the shares bought and the money provided;
- trustee restrictions: not a director, key managerial personnel or promoter (or relative) and not a beneficial holder of ten per cent or more of the paid-up share capital.
Where the voting rights are not exercised directly by the employees, rule 16(4) requires disclosures in the Board's report. This is a route to money for a trust to buy shares. It is not a company holding shares for its own account.
Buy-back under section 68
Section 68(1) permits a company to purchase its own shares or other specified securities out of three sources: the reserves defined in section 2(43) (including the securities premium account, by Explanation II), the securities premium account, or the proceeds of an issue of shares or other specified securities, but not out of the proceeds of an earlier issue of the same kind. Section 68(2) sets the conditions, which include:
- authorisation by the articles;
- a special resolution (a Board resolution is enough where the buy-back is ten per cent or less of the total paid-up equity capital and reserves, under the proviso);
- a limit of twenty-five per cent or less of the aggregate of paid-up capital and reserves;
- a debt ratio of not more than twice the paid-up capital and reserves after the buy-back, unless a higher ratio is notified;
- all shares to be bought back fully paid-up;
- no further offer within one year from the closure of the preceding offer.
Section 68(4) requires completion within one year of the special resolution or Board resolution. Most relevant to this question is section 68(7): where a company buys back its shares, it shall extinguish and physically destroy them within seven days of the last date of completion. Section 68(8) bars a further issue of the same kind of shares within six months, apart from the exceptions printed. Section 69 requires a sum equal to the nominal value of the shares purchased out of those reserves or securities premium to be transferred to the capital redemption reserve account. Section 70 bars buy-backs through subsidiaries or investment companies, and in the circumstances of default printed there. For the mechanics, see our buy-back guide and buy-back service.
Reduction of capital: section 66
Section 66(1) allows reduction of share capital by special resolution, subject to confirmation by the Tribunal on an application by the company, and the Tribunal may confirm only where creditors' claims are discharged, determined, secured or their consent is obtained, as section 66(3) says.
A subsidiary holding its parent's shares: section 19
Section 19(1) says no company shall, by itself or through nominees, hold any shares in its holding company, and no holding company shall allot or transfer its shares to any of its subsidiaries; any such allotment or transfer is void. The provisos exempt a subsidiary holding as legal representative of a deceased member, as a trustee, or where it was already a shareholder before it became a subsidiary; in those cases it may vote only in respect of shares held as legal representative or trustee.
What "treasury shares" means in accounting
The Act does not use the term, and a search of the Act text finds none. Ind AS 32, paragraph 33, in the Ind AS Rules, says that if an entity reacquires its own equity instruments, those instruments ("treasury shares") shall be deducted from equity; no gain or loss is recognised in profit or loss on purchase, sale, issue or cancellation; and they may be held by the entity or by other members of the consolidated group. Paragraph 34 requires the amount held to be disclosed separately in the balance sheet or notes. Whether an Indian company may lawfully hold such shares is a question for the Act, answered above; the accounting standard says how to account for them if held.
Table: route, allowed, provision
| Route | Allowed? | Provision |
|---|---|---|
| Company buys own shares outright and holds them | No power, unless reduction under the Act | Section 67(1) |
| Reduction of share capital | Yes, special resolution and Tribunal confirmation | Section 66 |
| Buy-back | Yes, within the conditions; shares extinguished and destroyed in seven days | Section 68(2), (7) |
| Money for trustees to buy shares for employees | Yes, with the conditions | Section 67(3)(b), rule 16 |
| Loans to employees to buy shares | Yes, up to six months' salary, not for directors or KMP | Section 67(3)(c) |
| Subsidiary holding parent's shares | No, with three exceptions | Section 19 |
| Buy-back through a subsidiary | No | Section 70(1)(a) |
Worked example (invented names)
Gamma Textiles Limited buys back 1,000 of its equity shares. It completes the buy-back on 10 March. The seven-day rule means the shares must be extinguished and physically destroyed by 17 March (10 + 7). It then enters the details in the register under section 68(9) and files the return within thirty days of completion under section 68(10), on the form prescribed.
Common mistakes
- Treating shares bought back as available for re-issue.
- Using a subsidiary or trust to buy the shares for the company.
- Missing the one-year gap between buy-back offers.
- Confusing the accounting term with a legal power.
Need help with a buy-back?
If your company wants to return funds to shareholders, we can plan the buy-back, the resolutions, the declaration of solvency and the filings. See our buy-back of shares service.
Key takeaways
- Section 67(1) bars buying own shares unless reduction under the Act.
- Buy-back shares must be extinguished and destroyed within seven days.
- Employee trusts have their own conditions under rule 16.
- Subsidiaries cannot hold parent shares, except as section 19 provides.
- "Treasury shares" is an Ind AS 32 term, not an Act term.
Read next
- Funding Options for a Private Limited Company
- Unpaid Share Money: Recovering Calls or Forfeiting Shares
- Section 67: Restriction on Purchase of Own Shares
- Buy-back of Shares Under Section 68
Disclaimer: Based on the Companies Act, 2013 in the Ministry of Corporate Affairs consolidated text (last updated 29 July 2022), the Rules as consolidated in the Ministry's e-book and the other official texts named in this article, as consulted on 3 October 2026. Later amendments, notifications, circulars, forms and fees should be checked. Formats are general drafts to be adapted to the company's articles and facts. This article is general information, not legal advice; check the official text before acting.