Infosys Share Buybacks & The New Tax Rule: What Every INFY Investor Must Know

Many of us in the investment community keep a close eye on blue-chip giants like Infosys as for its strong fundamentals, Infosys (INFY) has also been known for rewarding its shareholders through periodic share buybacks.

Historically, these buybacks have been a tax-efficient way for investors to book profits. But a major shift in India’s tax laws, effective from October 1, 2024, is set to change the game entirely.

If you are an Infosys shareholder, understanding this change is crucial, as it directly impacts the money you take home from any future buyback.

The “Old Way”: How an Infosys Buyback Worked Before

Until now, the system was straightforward and investor-friendly.

When Infosys announced a buyback, the company itself shouldered the tax burden. It paid a “Buyback Distribution Tax” of around 23% to the government on the profit it distributed. For you, the shareholder, the money received from tendering your shares was completely tax-exempt.

Simple Analogy: Think of it as Infosys hosting a party. They paid for everything, including the heavy “tax” bill for the event. You, as a guest, simply enjoyed the tax-free meal.

The “New Way”: The Game Changes After October 1, 2024

The new rule flips the responsibility entirely. The tax burden now shifts from the company to the individual shareholder.

Starting from October 1, 2024, when you tender your shares in a buyback:

1. You Pay the Tax: The entire amount you receive will be considered your income and taxed at your personal slab rate (which could be up to 30% plus surcharges).
2. TDS is Deducted: Infosys will be required to deduct Tax at Source (TDS) before paying you, 10% for residents and 20% or more for NRIs (subject to tax treaties).
3. Capital Loss Benefit: The original cost of acquiring your shares can be claimed as a capital loss, which you can use to offset other capital gains.

The Analogy Revisited: Now, Infosys just hosts the party. When you leave, the government hands you the bill for everything you consumed. To make sure you pay, Infosys takes a 10% deposit (TDS) from you on behalf of the government before you even walk out the door.

A Practical Example: An Infosys Buyback – Old vs. New

Let’s put some numbers to this to see the real impact.

Assumptions:

1. You are an Infosys shareholder in the 30% tax bracket.
2. You tender 100 shares in a hypothetical buyback.
3. Infosys Buyback Price: Rs 1,700 per share.
4. Your Purchase Price: Rs 1,400 per share.

Scenario 1: Buyback under the OLD Rules

1. Total Amount Received: 100 shares x Rs 1,700 = Rs 1,70,000
2. Tax Paid by Infosys: (Company pays ~23% on its distributed profit)
3. Your Tax Liability: ₹0
4. Final Amount in Your Hand: Rs 1,70,000

Scenario 2: Buyback under the NEW Rules (After Oct 1, 2024)

Key Takeaway for Investors

The conclusion is clear: the new tax regime makes share buybacks significantly less attractive for investors, especially those in higher tax brackets. What was once a tax-free exit is now a fully taxable event.

As you evaluate any future buyback offers from Infosys or any other company, you must now factor in your personal tax liability to calculate your true post-tax return.

Disclaimer: This post is for informational purposes only and does not constitute financial or tax advice. The calculations are illustrative.