The much-awaited Infosys share buyback is here, but investors need to be clear on how taxation will play out. Unlike earlier, where companies bore the tax burden, the law now treats buyback proceeds as dividend income in the hands of shareholders, not capital gains.
Under the current rules, buyback proceeds are taxed as dividend income. Infosys will deduct a 10% TDS on the payout. No other tax will be paid by the company. Instead, shareholders themselves will be taxed based on their income slab — for instance, 20% or 30%. At the same time, the original cost of the shares is treated as a capital loss, but this can only be set off against other capital gains, not against dividend income.
For Infosys shareholders, the math looks like this. The buyback offer price is Rs 1,800 per share. After deducting 10% TDS, or Rs 180, the net payout works out to Rs 1,620 per share. However, taxation applies on the full Rs 1,800.
