Infosys buyback: Should you participate? Here are the tax implications

Infosys will buy back 100 million shares at an average price of ₹1,800, representing 2.41 per cent of its paid-up equity capital

With Infosys announcing its fifth and biggest share buyback, investor focus now turns to whether participation makes sense amid recent changes in buyback tax liabilities. 

 

Infosys will repurchase 100 million shares at an average price of ₹1,800 apiece. This represents 2.41 per cent of the total number of equity shares in the company’s paid-up equity capital, the company said in a release last week.  

 

This is the first time the IT major has offered to repurchase shares post the tweak in buyback tax liabilities norms. 

 

The IT bellwether last conducted a share buyback in December 2022, repurchasing over 60 million shares through the open market. In June 2021, it bought back more than 55 million shares. Earlier, the company carried buyback in 2019 for over 110 million shares, and another in 2017 involving more than 113 million shares.

 

Since October 2024, buyback proceeds received by shareholders are taxed as dividend income in the hands of investors, replacing the earlier regime where companies paid the buyback tax.

 

Given this, should you participate in the buyback after the stock has fallen nearly 17 per cent so far this year? 

 

Analysts at SMC Global Securities suggest that for an investor in a higher tax bracket (above ₹16 lakh annual income) that is taxed at the rate of 30 per cent, it may be more tax-efficient to sell Infosys shares in the open market instead of tendering them in the buyback.

  However, for an investor in the lower tax slabs, analysts suggest it would be better to participate in the buyback as it would leave them with higher proceeds. 

 

 

Here's an illustration for Infosys shareholders

If an investor tenders one Infosys share at ₹1,800 in the buyback, the company deducts 10 per cent tax deductible at source (TDS) and pays ₹1,620. 

 

 

However, for tax purposes, the full ₹1,800 is treated as dividend income and taxed at the investor's respective slab rate. Those in the nil tax slab can claim a refund while filing returns, but investors in higher brackets face a larger tax outgo, reducing post-tax returns.

 

By contrast, at the current market price, selling in the open market attracts tax only on capital gains (₹550, if a share was bought at ₹1,000) plus a small Securities Transaction Tax (STT), making it more tax-efficient than the buyback for most investors.

 

"Under a buyback, the entire ₹1,800 is treated as dividend income and taxed at your income slab rate, leading to a much higher tax burden, especially for those in the higher tax brackets," SMC said.  

Source: SMC Global Securities