Infosys recently announced a share buyback at ₹1,800 per share — significantly higher than its market price of around ₹1,510. However, notable founders such as N.R. Narayana Murthy, Sudha Murthy, and Nandan Nilekani chose not to sell their shares. The main reason: the new tax rules on buybacks.
Before the 2024 Budget, when a company repurchased its shares, the tax burden was on the company itself. It paid around 23% tax on the distributed amount, while shareholders received the buyback proceeds tax-free.
The Union Budget 2024 shifted the tax liability from companies to shareholders. Now, the entire amount received from a buyback is treated as dividend income and taxed according to the investor’s individual income slab — not just the profit earned.
Buyback offer price: ₹1,800 per share
Market price: ₹1,510 per share
Premium: ₹277 per share
For a person with an annual income above ₹1 crore, the effective tax rate is around 36%. This means that after tax, the investor effectively receives about ₹1,154 per share. As a result, they lose approximately ₹56 per share compared to selling in the open market — making the buyback unattractive.
Experts explain that Infosys promoters avoided participating because the new taxation policy erodes the premium benefit. The post-tax return from buyback is now lower than simply selling the shares directly on the exchange.
Interestingly, foreign investors benefit from tax treaties that India has signed with several countries. Their dividend income is taxed at concessional rates — typically between 5% and 20%, depending on the specific treaty. Hence, buybacks may still remain lucrative for them.
The Budget 2024 change has fundamentally altered the economics of share buybacks in India. With the tax burden shifting to investors, domestic shareholders lose much of the benefit of premium buyback offers, while foreign investors continue to enjoy lower tax rates under treaty protection. This move could reshape how Indian companies reward shareholders in the coming years.
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