Infosys Buyback and Its Tax Implications : You must Know

Why Does Infosys Buyback Cheer the Market but Bring a Tax Burden for Investors?

Infosys Limited, one of India’s largest IT services companies, has been a bellwether for the Indian technology sector for decades. Known for its global delivery model and consistent financial performance, the Bengaluru-headquartered company enjoys a strong reputation among institutional and retail investors alike. Its share buyback programs have often been seen as a way to reward shareholders, signaling confidence in business fundamentals. The latest buyback announcement worth ₹18,000 crore has once again boosted market sentiment. However, this comes under a revised tax regime, and investors must carefully evaluate the tax impact before tendering their shares.

What Is a Share Buyback and Why Do Companies Opt for It?

A buyback happens when a company repurchases its own shares from the market. This reduces the total number of shares outstanding, improves earnings per share (EPS), and often signals management’s confidence in long-term prospects. Buybacks may also prevent hostile takeovers or provide an exit option to investors.

Companies in India typically conduct buybacks via two methods: the tender offer route, where shares are purchased at a fixed premium price within a specific timeframe, and the open-market purchase method, where shares are bought at prevailing market prices. Infosys has opted for the tender route this time, offering ₹1,800 per share, which is an 18% premium to its last traded price.

How Does the New Tax Regime Affect Buybacks?

Earlier, companies bore the tax liability on buybacks through a buyback distribution tax. However, since October 2024, the responsibility has shifted to individual investors. Now, any buyback proceeds are taxed as dividend income in the hands of shareholders.

For resident investors, 10% tax is deducted at source (TDS). Non-resident investors face 20% TDS or applicable treaty rates. Beyond TDS, investors also need to factor in slab-based taxation. For instance, if a shareholder receives ₹10,000 from tendering shares, ₹1,000 is deducted as TDS, but the net ₹9,000 received is taxable based on the individual’s slab. Thus, investors in higher tax brackets may end up paying additional tax.

What Does This Mean for Investors?

Suppose an investor tenders 10 shares and receives ₹18,000. TDS of ₹1,800 is deducted. The remaining ₹16,200 is credited to the investor. This income is classified as “other income” and taxed per slab. If the investor falls in the 20% tax slab, additional liability beyond TDS applies.

The key difference is that earlier, investors only received post-tax buyback proceeds as companies paid the buyback tax. Now, the responsibility is on shareholders, making the process less tax-efficient, especially for those in higher brackets.

Is There Any Relief or Set-Off Available?

Investors can record their initial cost of acquisition as capital loss and adjust it against capital gains in the same year or future years. However, this requires careful tracking and documentation. The relief is partial and doesn’t eliminate the tax hit entirely.

Market Feedback on Infosys Buyback

Market analysts suggest that despite tax changes, Infosys’ buyback sends a strong signal of balance-sheet strength and confidence in future earnings. Such buybacks often provide near-term support to share prices. Retail investors with lower income levels may benefit more, while high-net-worth individuals could see reduced attractiveness due to higher tax incidence.

This development underscores the importance of understanding the new rules before tendering shares. Many investors may now adopt a strategy of waiting until the final day of tendering to gauge demand and tax implications before deciding.

As markets continue to digest the buyback impact, traders and investors are closely watching how Infosys stock reacts in the coming weeks. Strong fundamentals, global client wins, and cost discipline provide a favorable backdrop, though the tax regime reduces overall buyback attractiveness.

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Investor Takeaway

Infosys’ ₹18,000-crore buyback demonstrates management’s confidence and offers near-term support to the stock. However, the new tax rules mean investors must carefully assess net returns, as higher-income shareholders face a bigger bite. Retail participants with lower slabs may still find it attractive. Monitoring subscription levels and timing tender decisions wisely can help maximize benefits.

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SEBI Disclaimer: The information provided in this post is for informational purposes only and should not be construed as investment advice. Readers must perform their own due diligence and consult a registered investment advisor before making any investment decisions. The views expressed are general in nature and may not suit individual investment objectives or financial situations.

tags: Infosys Buyback, Infosys Share Price, Tax Rules on Buyback, IT Sector, Indian Stock Market, Tender Offer, Investor Taxation, SEBI