Infosys’ Massive ₹18,000 Crore Buyback – The Tax Rules You Can’t Ignore

Infosys’ announcement of a record ₹18,000 crore share buyback has created a buzz among investors. The buyback, priced at ₹1,800 per share, an 18% premium over the prevailing market price, marks one of the largest corporate actions in recent years. However, the development comes under India’s revised buyback tax regime, introduced in October 2024, which has fundamentally changed the way investors are taxed. 

Unlike earlier years, the burden of taxation has now shifted from companies to shareholders, making it crucial for investors to understand the financial implications before tendering their shares.

What is a Buyback and Why Does Infosys Do It?

A buyback occurs when a company repurchases its own shares, thereby reducing the number of shares in circulation. Companies pursue buybacks for multiple reasons—supporting the share price, improving earnings per share (EPS), preventing hostile takeovers, and deploying surplus cash more efficiently.

Infosys has historically relied on buybacks to distribute excess cash to shareholders. Its earlier buybacks ranged from ₹8,260 crore in 2017 to ₹13,000 crore in 2022. This time, Infosys is set to repurchase nearly 10 crore equity shares, representing 2.41% of its paid-up capital, underscoring its robust liquidity position, backed by a free cash flow of around ₹7,805 crore in the June 2025 quarter.

The New Buyback Tax Regime (Post October 2024)

Until September 2024, companies were liable to pay a 20% Buyback Distribution Tax (plus surcharge and cess) on the difference between the buyback price and the issue price. This structure relieved shareholders of direct tax obligations.

From October 2024, however, the system changed dramatically. Under the new rules, the entire buyback proceeds are treated as dividend income in the hands of shareholders, taxed as per their income tax slab. This means that not just the profit, but the entire buyback payout is considered taxable income.

Comparing Old vs. New Buyback Tax Regimes
 

In summary, while the old regime shifted responsibility to companies, the new system can lead to heavier tax liabilities for wealthy investors, although smaller investors in lower tax brackets may not be as adversely impacted.

How Will Shareholders Be Taxed?

The practical effect of this regime is best illustrated with an example. Suppose an investor holds Infosys shares bought at ₹1,000 each and tenders them at ₹1,800 under the buyback. The total ₹1,800 will now be considered as dividend income, not just the ₹800 profit.

Resident shareholders will face a 10% TDS, while non-residents may be subject to a 20% TDS, adjusted by double taxation treaties where applicable. Beyond this, shareholders must pay tax according to their applicable income slab. For those in the 30% bracket, the burden becomes significantly higher.

An important relief exists, however. Investors can record their original investment value as a capital loss, which can be set off against capital gains in the same year or carried forward for up to eight years. This provision helps cushion the impact of the new rules to some extent.

Why High-Income Investors May Suffer More

Market analysts argue that taxing the entire proceeds, including the invested capital—is unfavourable and distorts investor sentiment. Wealthy investors, particularly those in the 30% bracket, could find their net returns substantially reduced.

For small shareholders, however, the impact is less severe. If one falls within the 10% or 20% slab, the net burden is lighter, and the ability to claim capital loss set-offs provides additional protection.

Illustrative Impact of Buyback on Shareholders (per share basis)
 

As seen, the burden disproportionately affects wealthier shareholders, making buybacks less attractive for them under the new framework.

Broader Market Implications

Infosys’ buyback is significant not only because of its scale but also because it will serve as a litmus test for India’s new tax rules. While the move may temporarily lift stock prices, it also raises questions about the attractiveness of buybacks as a corporate strategy. Some experts believe companies may lean more towards dividends going forward, as the tax treatment is now largely aligned.

Moreover, the policy shift may alter how foreign institutional investors (FIIs) participate in Indian corporate actions, given their higher TDS liabilities and reliance on tax treaties.

Conclusion

Infosys’ ₹18,000 crore buyback highlights the dual reality facing Indian investors. On one hand, it reflects the company’s strong cash position and its continued effort to return wealth to shareholders. On the other hand, the October 2024 tax reforms have significantly altered the economics of buybacks, transferring the burden squarely onto individual investors.

While small investors may still benefit from the premium offered, high-income shareholders are set to face much higher tax liabilities, potentially making buybacks less appealing. The true test will come once this buyback is completed, if shareholder participation declines, it could signal a structural shift in how Indian companies approach shareholder returns in the future.
 

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