Infosys Buy back Offer - Buy back tax from Investor perspective

Infosys announced of its largest buyback offer of equity valued at around 18000 crores, which means 1800 Rupees per shares. This is 2.41% of the share capital and the price is around 19% premium on the present market price. Most of the experts says this is one of such opportunity for shareholders who are in search of liquidity to achieve that. They can sell their shares at much higher price, and for the holders who want to hold on, this means a high earning per share and high book value.

In this article we are trying to understand the tax implications on buy back, law changed from 2024 and may not look that attractive.

What Changed & What is New in Buy back and its tax

Aspect	Before Oct 1, 2024 (Old Regime)	On or After Oct 1, 2024 (New Regime)
Company-level buyback tax (Section 115QA)	Company paid a tax on the “distributed income” (i.e. buyback price minus issue price) at 20% + surcharge + cess. Effective rate ≈ 23.296%.	Section 115QA no longer applies for buybacks done on or after 1 Oct 2024. Company does not paythe buyback tax under 115QA for such buybacks.
Tax liability for shareholders	Shareholders had no tax liability for buybacks. Amount received in buyback (net of issue price) was exempt under Section 10(34A).	The amount received in the buyback is now deemed dividend under a new provision (Section 2(22)(f)), and taxed in the hands of the shareholder as “Income from Other Sources.” No deduction allowed for the cost of acquisition against that dividend income.
Capital gains / capital loss treatment	Since shareholders were exempt, no capital loss mechanism or computation related to buybacks was needed.	For capital gains purposes, the “consideration” received in a buyback is deemed to be nil (per amended Section 46A). That gives rise to a notional capital loss equal to the cost of acquisition of the shares bought back. That capital loss can be carried forward (for eight years) and set off against other capital gains. It cannot be set off against dividend income or income under other heads. That means , you do not have capital gain you lost the capital loss deduction.
TDS (Tax Deducted at Source)	Earlier, the regime focused more on company paying tax; TDS specific to buybacks was not as relevant or significant.	New provisions require the company to deduct TDS at 10% on buyback consideration paid to resident shareholders. For non-resident shareholders, TDS/withholding may happen per applicable rates or DTAA.

Key Rates - Buy back tax

Old Buyback Tax (Company side): 20% on distributed income + surcharge + cess → ~ 23.296% effective

New Tax (Shareholder side): The buyback proceeds are taxed as dividend income at their normal slab rates under "Income from Other Sources" (for resident individuals) from Oct 1, 2024 onwards. 

What This change Means for Investors

If your shares are bought back before 1 October 2024, the company would pay the buyback tax, and you as a shareholder had (until then) no tax on that buyback amount.

If your buyback happens on or after 1 October 2024, you (the shareholder) must include the full amount you receive as dividend income and pay tax accordingly.

You also get a notional capital loss corresponding to your cost of acquisition of those shares — which you can carry forward and use against future capital gains (but not against the buyback dividend income).

Example

Buyback price per share = ₹1,200

Issue price (original cost) per share = ₹200

Number of shares = 100

So, amount received on buyback = ₹1,20,000

1. Old Regime (Till 30 Sept 2024)

Tax was paid by the company under Section 115QA.

Distributed income = (₹1,200 – ₹200) × 100 = ₹1,00,000

Company tax = 20% of ₹1,00,000 = ₹20,000

Add surcharge + cess (effective ~23.296%) = ₹23,296

Shareholder: Exempt from tax (Section 10(34A)).Company: Pays ~₹23,296 as buyback tax. Shareholder’s net amount = full ₹1,20,000 (no tax deducted).

2. New Regime (On or After 1 Oct 2024)

Tax shifted to shareholders.

Buyback proceeds received = ₹1,20,000 (entire amount treated as deemed dividend)

Tax in shareholder’s hands = Taxed as Income from Other Sources at slab rate.

Suppose shareholder’s slab = 30% + 4% cess = 31.2%

 Tax payable = 31.2% × ₹1,20,000 = ₹37,440 Company deducts TDS @10% = ₹12,000 upfrontShareholder pays balance while filing ITR = ₹25,440

 Capital Gains angle:

For capital gains, consideration = nil (as per Section 46A amendment

Cost of acquisition = ₹20,000 (₹200 × 100)

So, a capital loss of ₹20,000 arises

This can be carried forward up to 8 years to set off against future capital gains

Shareholder’s net in hand = ₹1,20,000 – ₹37,440 = ₹82,560 (after tax)

 Company: No buyback tax.

To conclude we can understand the buy back and its taxation if you are looking from the investors angle may not be that attractive.

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