Facts:

• On 11 th September 2025 Infosys Ltd, on announced a scheme of buy back of equity shares at a price of Rs. 1,800 per share as against the prevailing market price of Rs. 1,510
• An apparent gain of Rs 300 per share if shares offered under buyback

Key considerations:

• Per Finance No (2) Act, 2024 inserted clause (f) in Section 2(22), a buyback is deemed as 'dividend income and taxed at Maximum Marginal Rate [MMR]
• However, if shares are sold on the exchange, it will be taxed at lower Capital Gains tax rate vis-à-vis dividend rate [MMR]

Implications:

Tax in the hands of resident individual shareholders

• Buy back - Entire Rs. 1,800/- taxed as dividend income @ 34.32% [MMR]. Also, cost basis available as Long-Term Capital Loss / Short-term Capital Loss for set-off
• On market transfer – Taxed @ 14.30%/22.88% on net gains depending on whether shares held for less than 24 months or otherwise

Tax in the hands of non-resident shareholders

Buyback - Concessional rates prescribed under the tax treaty for dividend
• Hong Kong, Mauritius, Saudi Arabia - 5%,
• UAE, France, Germany, Japan, Netherlands - 10%.
• Singapore, Australia, New Zealand, Canada - 15%

Illustrations – Resident shareholder:

Conclusion: The net loss to the shareholder, in case he opts for the buy- back option, will be Rs 118 per share despite getting a premium of Rs 300 on buyback. It may not be prudent for an individual resident shareholder, holding shares for more than 1 year (i.e. where the gain is long term in nature), to offer shares under this buy back scheme.

Conclusion: In a STCG case, the shareholder will be better off by offering shares under the buyback option. This analysis will hold good even if the cost of shares is taken to be Rs. 1200. As apparent from the above, even if the cost of shares is Rs. 1200 per share, even then the shareholder will have more cash in hand (Rs. 25 per share) in case shares are offered to tax under buy back route.