India’s leading IT company, Infosys, has announced a share buyback worth ₹18,000 crore. The biggest ever buyback aims to snap up 10 crore shares from the market. Infosys has set the price of ₹1,800 per share. This means atleat 19% premium to the current market price
Those who have Infosys shares can use this buyback to sell their shares at a higher price than the current market price. But before you make your decision, you need to know how this will impact your final returns and how much tax you will be liable to pay.
What is a share buyback?
When a company takes shares back from the market circulation and buys them from their existing shareholders, usually at a premium from the current market price, it’s called a share buyback. This can be used as a tool to increase earnings per share (EPS), offering support to a plummeting stock price. For investors and shareholders, this works as an offer to get profits at a premium.
Tax implications of Infosys buyback
Since October 2024, earnings from share buybacks are treated as dividend income. This means the amount you receive from the buyback will be taxed as per the income tax slab you fall under.
The tax implication begins right from the top. Infosys will deduct 10% TDS on the buyback amount before crediting it to you. Apart from this, you also pay tax on the total amount of buyback as per your tax slab.
Let’s say you sell 100 Infosys shares in the buyback at ₹1,800 each.
- Your gross buyback amount is ₹1,80,000.
- Infosys deducts 10% TDS: ₹18,000.
- You receive ₹1,62,000 initially.
Now if you fall under the 0% tax slab, you pay no tax and can claim the TDS back. But if you fall under a 10% or 30% tax slab, your total tax liability goes up to ₹18,000 and ₹54,000, respectively.
| Gross buyback amount |
Income Tax slab |
Tax rate for buyback amount |
Tax on buyback amount |
Tax after TDS |
Total Returns |
| ₹1,80,000 |
0% |
0% |
0 |
₹0 (TDS can be claimed back) |
₹18,000 |
| ₹1,80,000 |
10% |
10% |
₹18,000 |
₹0 |
₹1,62,000 |
| ₹1,80,000 |
30% |
30% |
₹54,000 |
₹36,000 |
₹1,26,000 |
What about the purchase price?
The price you paid for buying those Infosys shares in the first place does not go to waste. If you bought those shares at a price higher, you will have a capital loss that you can use to set off some of your capital gain and reduce your tax liability.
Let’s say, you bought a share at a purchase price of ₹2,000 per share and the buyback price is ₹1,800 per share, then the difference of ₹200 per share will be your capital loss.
But you can’t use this capital to set off with the dividend income from the Infosys buyback.
Who Benefits the Most?
Investors in lower tax slabs could benefit from tendering in their shares as they pay little to no tax on the earnings. While investors in higher tax brackets may be disincentivized due to a big tax hit.
