Infosys buyback: Should you participate or skip it this time?

Taxation rules for Infosys Buyback

After changes in tax laws, buyback proceeds are now treated as dividends taxable at your slab rate, with no cost deduction allowed. Today's Ask Wallet Wise decodes whether the Infosys buyback makes sense for you, depending on your total income, holding period, and capital gains position.

I received Rs 13,000 against the buyback offer of Nava Ltd in March 2025, on which tax @10 percent amounting to Rs 1,300 was deducted. After deducting my acquisition cost of these shares, my actual gain was only Rs 1,100. Thus, there was no real benefit from the buyback offer. Now Infosys is coming up with a buyback offer. Would it be wise to participate in it?

Expert' View: Before the amendment in tax laws, companies were required to pay 20 percent tax on the amount utilised for share buybacks, while the proceeds received by shareholders were exempt under Section 10 of the Income Tax Act. However, this law was amended, and now the money received by a shareholder from a company under a buyback is treated as a dividend, taxable at the individual’s slab rate.

Under the current tax regime, the entire amount received under a buyback is taxable as dividend income in the hands of the shareholder, with no deduction allowed for the cost of acquisition of the shares.

The cost of the shares bought back by the company is treated as a capital loss-short-term or long-term depending on the holding period. This loss can be set off against taxable capital gains as per the provisions for set-off and carry-forward of losses under income tax laws.

In your case, the Rs 13,000 received under the buyback is taxable as dividend income, even though your actual gain was only Rs 1,100.

Tendering shares in a buyback is tax-efficient only if your total taxable income (including the dividend from the buyback) does not exceed the threshold for the Section 87A rebate under the new tax regime. In that case, you can claim a rebate for the entire tax payable on the dividend.

Had you sold the shares in the open market, your gains would have been taxed at 12.5 percent for shares held for more than 12 months, or at 20 percent for short-term holdings, regardless of your total income.

Tax efficiency improves under the new regime if you have taxable capital gains that can be set off against the capital loss arising from the cost of shares tendered in the buyback.

If the shares offered for buyback are held for less than 12 months and your total income (taxed at either slab or special rates) does not exceed Rs5 lakh, you can still claim the Section 87A rebate under the old tax regime, as it is available even against tax on short-term capital gains in listed equities.

Therefore, whether you should participate in the Infosys buyback offer depends on factors such as your total income, holding period of shares, and availability of capital gains or losses for set-off as discussed above.

Disclaimer: The views expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.

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