India Inc. braces for buyback rush ahead of changes to tax rules

India Inc. braces for buyback rush ahead of changes to tax rules

Companies in India are gearing up for increase in share buybacks in the coming weeks before new tax rules on repurchases take effect on Oct. 1.

At least 11 firms, including Indus Towers Ltd., have or are set to approve share buybacks shortly after the new regime was proposed in the budget on July 23. This is a jump from the average of about four transactions per month in 2023, data from primeinfobase.com show.

“Some companies are using the short window available to come forward,” said Siddarth Bhamre, head of research at Asit C. Mehta Investment Interrmediates Ltd. “The ones with low debt and cash in hand to pay investors might be tempted to do so.”

Indus Towers Ltd., which provides shared infrastructure to mobile-phone carriers, last week announced a buyback totaling 26.4 billion rupees ($315 million). TTK Prestige Ltd., a maker of cooking appliances, plans to repurchase shares worth 2 billion rupees. Dhanuka Agritech Ltd. approved a buyback worth 1 billion rupees, while Cera Sanitaryware Ltd.’s board is set to meet Monday to consider similar action.

Money received from share buybacks will now be treated as dividend income in the hands of the shareholders and taxed at their individual tax slab rates when the rules take effect. At present, these transactions are taxed at a rate of 20% at the company level.

The changes could significantly increase the effective tax burden for shareholders in the higher income tax bracket, said Bhamre, adding that the tweak could also be advantageous to shareholders in some cases.