When promoters of Infosys Ltd - including NR Narayana Murthy, Sudha Murthy and Nandan Nilekani, among others - decided to opt out of the company’s ongoing share buyback programme despite the offer carrying a hefty premium of more than Rs 300 per share over the prevailing market price, everyone was curious what the reason could be.
Experts claim the decision was driven by tax consideration as participating in the buyback offer would result in steep tax implications for individual shareholders.
On September 11, 2025, Infosys announced a buyback of equity shares at Rs1,800 per share, compared with the market price of Rs1,510 on that date. The stock currently trades at around Rs 1,523 implying a premium of RS 277 per share under the buyback offer.
Now vs then
While the offer looks attractive on paper, an amendment in tax laws pertaining to taxation of gains from buybacks in the Budget 2024 has changed the dynamics. As a result of the amendment in Section 2(22) of the Income Tax Act, any payment made by a company to buy back its own shares is now deemed as ‘dividend income’ in the hands of shareholders, and is taxed at slab rates.
Earlier, any listed domestic company that buys back its own shares is liable to pay additional income tax on the distributed income at an effective tax rate of 23.296% of distributed income [Rate of tax - 20% (plus surcharge @ 12% plus Health and education cess @ 4%)]. The tax was applicable on the difference between the amount paid by the company on account of buyback and the amount received by the company for the issue of such shares.
However, an amendment in Budget 2024 changed everything. Now, individual shareholders who opt for the buyback offer have to pay the tax on the entire amount received (and not on the difference between the sale and purchase price.
In case of Infosys buyback offer, a resident individual shareholders will be taxed on the entire Rs 1,800 received per share as dividend income, without any deduction for the purchase cost of the shares. For those with annual income exceeding RS 1 crore, the effective tax rate is 35.88%, resulting in a tax liability of about Rs 646 per share. This leaves a net post-tax amount of Rs1,154 per share in the hands of the investor.
By contrast, if a shareholder sells the shares on the open market, the gains are taxed as long-term capital gains at an effective rate of 14.95% (including surcharge and cess). Assuming a historical purchase price of Rs 100 per share, the tax on a gain of Rs 1,423 would be roughly Rs 213, leaving a net post-tax amount of ₹1,210 per share.
This means that even though the buyback offers a Rs 277 premium over market price, a resident individual shareholder would end up Rs 56 per share worse off post-tax compared to selling in the open market.
Tax experts say this is the primary reason Infosys promoters have chosen not to participate in the buyback. “The new tax rules effectively neutralise the benefit of the premium being offered,” says Ved Jain, a chartered accountant and a senior tax consultant.
However, non-resident shareholders stand to benefit substantially from the buyback. Under various Double Taxation Avoidance Agreements (DTAAs), dividend income for non-residents is taxed at concessional rates ranging from 5% to 20%.
