Infosys share buyback: What investors should know about tax rules. Who can benefit?

IT giant Infosys recently announced its largest-ever share buyback, worth ₹18,000 crore. While buybacks can be attractive for investors, it is essential to understand the income tax implications.

What is a share buyback?

What are the buyback income tax rules?

Earlier, shareholders did not pay any tax on income received from a company buyback; instead, the company paid a 20% buyback tax.

However, with the Union Budget 2024, Finance Minister Nirmala Sitharaman announced that buyback proceeds will now be treated as income for the shareholders themselves.

Now, investors have to pay tax on buyback gains according to their individual income-tax slab rates, without any indexation benefits.

Infosys share buyback: Who can benefit?

Mumbai-based tax and investment expert Balwant Jain has shared insights on how the recent Infosys share buyback could affect investors.

According to Jain, investors with an annual income below ₹12 lakh may benefit from participating in the buyback. “Since the buyback proceeds are now treated as 'income from other sources', taxpayers whose total income is below ₹12 lakh can claim a rebate under Section 87A in the new tax regime,” he said.

Jain also compared the buyback with selling shares on the stock market. “Selling shares in the open market triggers long-term capital gains (LTCG) tax if the shares have been held for more than a year. The effective LTCG tax rate is around 12.5%," he said.

Buybacks are treated as dividend income and taxed according to the investor’s applicable income-tax slab rate.

• Buyback proceeds will be added to your taxable income.

• Income tax will be charged according to your income tax slab rate.

• Taxpayers must report the income under “Income from Other Sources” while filing your return.

Investors looking to participate in the buyback should carefully consider the new tax rules and plan accordingly before tendering their shares.