Infosys share buyback: Nithin Kamath, other experts explain tax impact

Investors must not treat buyback proceeds the same way as capital gains from selling shares on exchange, they say

As Infosys rolls out its largest-ever share buyback worth Rs 18,000 crore, Zerodha’s leader Nithin Kamath has explained what the offer means for retail investors, especially how the tax works.

 

The buyback through tender offers Rs 1,800 per share, a sizable premium to recent market price. The offer ends on Friday and only shareholders who hold Infosys in their demat accounts on or before this date are eligible.

 

“Infosys is one of the most widely held IT stocks in India” said Kamath on X. The company will buy back up to 100 million shares, about 2.41 per cent of its equity base. Of this, 15 per cent has been earmarked for small investors.

 

 

For many retail shareholders, the question is how much will they gain after tax? Kamath said investors should not treat buyback proceeds the same way as capital gains from selling shares on the exchange. Instead.

 

Money received from a buyback is treated as “income from other sources”.

It is taxed at the investor’s regular Income-Tax slab rate.

 

Your entire original investment is treated as a capital loss, which can be set off against other capital gains.

 

This combination may appear counter-intuitive, but it creates room for tax planning. For example, if an investor expects sizable capital gains elsewhere, say, from equity or property sales, the capital loss created through the buyback could help reduce the overall tax burden. 

Short-term or long-term?

 

The nature of the capital loss depends on how long the shares were held: 

Less than one year: considered a short-term capital loss 

More than one year: considered a long-term capital loss

 

This classification determines what types of gains the loss can be offset against. Short-term losses can be set off against both short-term and long-term gains. Long-term losses can only be set off against long-term gains.

Should you tender your shares?

 

The arithmetic looks straightforward on the surface. A tender price of Rs 1,800 against a recent market price of about Rs 1,550 offers an attractive spread. But the effective return ultimately depends on:

Your Income-Tax slab

 

The proportion of shares that get accepted in the tender

 

Your ability to use the capital loss to offset future gains

 

For retail shareholders weighing their options, understanding this tax structure is crucial. A buyback premium may look generous, but the real benefit lies in how well the tax rules align with an investor’s broader financial picture.

 

The tax treatment Kamath referred to stems from a recent shift in the law. “Effective 1 October 2024, buyback proceeds received by shareholders are treated as taxable dividend income in their hands, replacing the earlier regime where such amounts were exempt,” said Avnish Arora, executive director, direct tax, Forvis Mazars India.

 

According to analysts at ClearTax, while a premium on a share buyback may appear attractive, investors should evaluate acceptance ratios and the timing of gains. “The true value of a buyback lies not just in the headline price, but in how effectively you can offset the resulting capital-loss against other gains,” they said in a commentary.