Income tax calculation: What if you do not participate in Infosys buyback and sell in open market

If you do not participate in the buyback, then there will not be any immediate tax impact. However, tax may arise when you sell the shares later in the open market. The total tax implication at that time will depend on the holding period and the amount of capital gains.

If you sell the shares after holding for 12 months, then capital gains are taxed as long-term at 12.5%. You also get to claim a tax exemption on long-term capital gains up to ₹1.25 lakh under Section 112A. In case shares are held for less than 12 months, then capital gains are taxed as short-term at 20%.

Suppose you sell 500 shares in the open market at ₹1500 apiece. You are in the 30% tax slab and you had originally purchased these 500 shares in 2020 at ₹900 each.

As the holding period is more than 12 months, 12.5% tax will apply on your long-term capital gains.

Capital gains = (500x1500)-(500x900) = ₹3 lakh. On this, you can claim a tax exemption for up to ₹1.25 lakh. This means you will need to pay LTCG tax at 12.5% on ₹1,75,000 (3,00,000-1,25,00).

LTCG tax = ₹1,75,000x12.5% = ₹21,875.

Thus, the total post-tax amount in your hand after selling the shares in the open market will be ₹7,50,000-₹21,875 = ₹7,28,125. Your actual gains after tax will be ₹3,00,000 - ₹21,875 = ₹2,78,125

Please note that the above is a one-off example where the shares have been held for the long term, i.e., more than 12 months. In a real-world scenario, the tax impact of selling shares in the open market can vary based on the holding period, applicable market price, the actual cost of acquisition, tax rate, ability to set off losses, etc.