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?
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?
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?
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?
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.
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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.
