1. Introduction

1. Infosys Ltd, on 11^th September, 2025 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/- as on that day. On the face of it, the buy-back may look to be move attractive as the company will be offering Rs. 1,800/- per share as against market price of Rs. 1,510/- and there will be an apparent gain of Rs. 290/- per equity share. However, the tax implication arising on such buy back of share may be more than the premium being offered by the company under proposed buy back scheme.
2. After the amendment made by Finance No (2) Act, 2024 inserting clause (f) in Section 2(22), any payment made by a company on purchase of its own share from a shareholder in terms of section 68 of the Companies Act, 2013 is to be deemed as ‘dividend income’. Further, in terms of the amendment made to section 46A of the Act, the cost of purchase of shares is treated as a capital loss and is eligible for set off against other capital gain income, if any.
3. Accordingly, the entire amount of Rs. 1,800/- received by the shareholder on such buy back of shares will be considered as dividend income in the hands of the shareholder. It may be important to point out that it is the entire amount received on buy back, ignoring the cost of purchase whatsoever, that is to be deemed and taxed as dividend income. The cost of purchase of shares shall however be eligible for set off against other capital gain income.

1. Implications in respect of Individual Resident Shareholder holding shares as capital assets

1. Under the new tax regime applicable to an individual as prescribed under section 115BAC of the Act, the tax rate applicable on an individual having income of more than Rs. 24 Lacs is 30%, with surcharge of 10% to 15% depending upon the total income of the individual.

B.1.1. Comparative analysis (buy back vs capital gain) in case shares are held as Long Term capital assets i.e held for more than 1 year prior to date of transfer

Example 1 - Assuming purchase cost of shares as Rs. 100, sale price as Rs. 1500, buy back price as Rs. 1800; gain is long term

1. Assuming the income of the individual shareholder is more than Rs. 50 lakhs but below Rs. 1 crore, the effective tax rate is 34.32 % (30% tax + 10% surcharge + 4% cess), with the result that such shareholder will be liable to pay tax of Rs. 618/- (1800 x 34.32%) on this amount of Rs. 1,800 received in respect of equity share offered to the company under buy back scheme. The net amount, thus, in the hands of the shareholder will be Rs. 1,182 only.
2. As against the above, if such shareholder, instead of offering the shares to the company under the buy-back, sell these shares in open market on the stock exchange, the income will be chargeable as capital gain. Assuming that the gain is long term in nature, the tax rate applicable on long term capital gain will be 14.3% (12.5% tax + 10% Surcharge + 4% cess) and that too on the difference between the selling price and the price at which the shares were purchased by such shareholder. Assuming that such shareholder had purchased the share say at a very low price of Rs. 100/- per share, then, the tax on capital gain of Rs. 1,400/- (1,500 selling price – 100/- purchase price), applying this tax rate of 14.3%, will be Rs. 200 only with the result that the net amount post tax in the hands of the shareholder will be Rs. 1,300/-, as against Rs. 1,182/- being the net amount post tax in case the shareholder offers the shares in the buyback scheme to the company. Thus, 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.
3. The only advantage to the shareholder, in addition to this buy back premium, may be that he will have a right to set off the purchase price of Rs. 100/- as capital loss against any other capital gain income. Accordingly, assuming that such shareholder has any other capital gain eligible for set off against such loss (of Rs. 100), even this tax advantage will be only Rs 14.30 i.e. @ 14.3% on such loss of Rs. 100/-. Thus, in case the shareholder opts for the buy-back route, the shareholder will still be net looser by Rs 104 (Rs118-Rs 14).

Example 2- Assuming purchase cost of shares as Rs. 1000, sale price as Rs. 1500, buy back price as Rs. 1800; gain is long term

1. In the earlier example, purchase price has been assumed at Rs. 100/- per share. In case of a shareholder whose cost of purchase per share is higher, the net loss on offering shares in buyback will be much higher. Assuming in the above example the purchase price at Rs. 1,000/- per share instead of Rs 100 per share, the capital gain tax on selling such shares in the open market will be Rs. 72/- per share only ( i.e. selling price Rs. 1,500/-, purchase price of Rs. 1,000/-, capital gain, Rs. 500 tax thereon @ 14.3%). The net realization will accordingly be Rs. 1428 (Sale proceeds Rs.1500- Tax of Rs.72).
2. As against the above, the tax in case the shares are offered for buy back will continue to be the same as discussed earlier i.e. Rs. 618 and the net post tax amount in hand will also be the same as discussed earlier i.e. Rs. 1182.
3. Thus, the net realization in case shares are sold in the open market (capital gain route) will be lower by Rs 246 (i.e Rs. 1,428/- under capital gain route - Rs. 1,182/- in case such shares are offered in buy back).
4. Further, even if one were to consider the impact of tax savings arising on account of set off of loss on account of purchase price under buy back option, such tax savings will be Rs. 143 (14.3% X cost of Rs 1000 cost). Thus, even after taking into consideration the benefit of Rs 143 consequent to set of purchase cost as capital loss of Rs. 1,000/-, the tax incidence will still be higher by Rs 103 per share (Rs. 246 – Rs. 143).

Tabular Chart of above analysis

1. A tabular chart in respect of aforesaid two examples reflecting the benefit arising to shareholder in case he sells the shares in open market vis-à-vis offers the shares in buy back is as under:

 Buyback vs. Open Market Sale (LTCG) – Individual Shareholders

Summary: Resident shareholders holding shares for more than 1 year i.e. long term

1. In view of the above, 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.
2. However, in the case of a resident shareholder, whose total income after including the amount received on buy back of share is Rs. 24 lakhs or less, it may be advantageous to offer the shares in such buy back as the tax rate applicable on income up to Rs 24 lakhs is lower. Where the income including the amount so received on buyback of shares exceeds Rs. 24 lakhs, in most cases, it will not be beneficial for a Resident individual shareholder despite the fact of receiving Rs. 300 premium per share in the buy back over and above the market price.

B.1.2: Comparative analysis (buy back vs capital gain) in case shares are held as short term capital asset i.e. held for period less than 1 year prior to date of transfer

1. As against the above, in case the shares are held by the resident shareholder for less than 1 year i.e. if the gain qualifies as a short term capital gain, then offering the shares in buy back may be more feasible.
2. Assuming a case where the cost of shares purchased was Rs. 1400, the sale consideration in case shares are sold at open market is Rs. 1500, then net gain in the hands of the shareholder shall be Rs. 100. The short tax capital gain tax rate is 20% under section 111A of the Act. Assuming surcharge is applicable at 10%, and considering the cess of 4%, the effective tax rate shall be 22.88%. Thus, the effective tax cost in case shares are sold at open market will be Rs. 23 per share and the net proceeds after tax shall be Rs. 1,477 per share.
3. As against the above, in case share are offered to tax under buy back, the tax cost of receipt of dividend income of Rs. 1800 will be the same as computed above i.e. 618 and the net proceeds after tax shall be Rs. 1,182. Thus, on the first blush, there will be loss of Rs. 295 (1477– 1182) in case shares are offered for buy back. However, in case shares are offered to tax under buy back, the shareholder will also be entitled to claim set off of the cost of purchase of shares as short term capital loss against other short term capital gain, if any. In the above example, the tax savings on set off of such capital loss of Rs. 1400 will be Rs. 320 (1400 * 22.88%). Thus, in case shares are offered for buy back, the net additional cash in hand will be Rs. 25 per share (320 – 295). Thus, in such a case, the shareholder will be better off by offering shares under the buy back option. This analysis will hold good even if the cost of shares is taken to be Rs. 1200.
4.  A tabular chart indicating the above analysis is reproduced hereinbelow:

Buyback vs. Open Market Sale (STCG) – Individual Shareholders

1. 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.

B.2. Summary: Resident Shareholders holding shares as capital asset

1. Thus, in case gain is long term in nature and the income is in excess of Rs. 24 lakh, the resident shareholder may be benefitted by offering the shares in open market as against offering the shares in buy back. In case however the shares are held as short term, then the resident shareholder may be benefitted by offering the shares under buy back (as against sale in the open market). In case the income (including income on buy back is below Rs. 24 lakh), then irrespective of the nature of the gain (short term or long term), the resident shareholder may be benefitted by offering the shares under buy back as against sale in open market.

B.3. Resident Shareholders holding shares as stock in trade

1. The next issue which may be relevant is what happens in case the shares were offered by the shareholder are held as stock-in-trade as part of its business of purchase and sale of share.  Sub-clause (f) in section 2(22) inserted by the Finance (Act No. 2), 2024 does not distinguish in respect of the consideration received by a shareholder where such shares are being held as investment or as stock-in-trade.  The total amount received is deemed to be a dividend irrespective of the nature of investment. Thus, the amount received on buy back shall be considered as dividend irrespective of the nature of investment. 
2. A proviso has been inserted in section 46A for the purpose of computing capital gain/loss.  It has been provided in this proviso that the value of the consideration in buy-back of the shares shall be deemed to be nil. Consequently, as the sale price cost shall become nil, the entire purchase cost becomes a loss which is allowable for set off against the other capital gain income.  However, it is to be noted that this section 46A is in relation to treating the purchase cost as capital loss in case shares are held as capital asset (as also apparent from reading of Memorandum explaining the provisions of the Budget). Still, even in case the shares are held in business as stock-in-trade, the purchase cost should be treated as business loss and available for set off, though the Act does not specifically provide so. 
3. Accordingly, in the case of a shareholder holding the shares as a stock in trade, the purchase cost shall become eligible for set off not only against any other business income, but also any other income of the same assessment year (including the deemed dividend so received).  This can lead to an arbitrage where a person may buy the shares as part of its business activity and offers the shares in buy-back, take advantage of premium of Rs. 300 and set off the purchase cost against the dividend income. Thus, in case of a resident shareholder holding shares as stock in trade, he may also be benefitted by offering shares under the buy back.

1. Implications in respect of a Corporate Shareholder (Company)

1.  In the case of a corporate shareholder, the position will be entirely different. In fact, it may be a big boon for the corporate shareholder to offer the shares held by it in the buyback scheme so as to take advantage of premium of about Rs 300 over and above the market price, more particularly where purchase cost of such shares is low.

C.1. Comparative analysis in case shares are held as long term capital asset

1. The effective tax rate on corporates by and large is 25.17% (Tax 22% + Surcharge10% + Cess 4%) in terms of section 115BAA of the Act. Thus, in the case of a Corporate, the tax on such deemed dividend income of Rs. 1,800/- will be Rs. 453/- with the result the net amount available to the corporate post tax will be Rs. 1,347/-.
2. As against the above, if such shares are sold by a Corporate in the open market, assuming the gain to be long term in nature, the tax on capital gain @14.3% (12.5% + 10% + 4%). Assuming the same cost of Rs. 100/-in the case of Corporate, the applicable tax will be Rs.200/-. (1500-100=1400*14.3%) and net realization post tax will be Rs. 1,300/-(Rs 1500-Rs 200).  Thus, the corporate shareholder will get an additional amount of Rs. 47 /- (Rs. 1347-1300) in case shares are offered for buy back. Further, the additional advantage of Rs 14 per share, by setting off of purchase price of Rs. 100/- as a capital loss against any other capital gain income, will also be available. Thus, the total advantage under buy back route shall be Rs. 61 (47+14).
3. However, in case the purchase price is Rs. 1,000/- as assumed in the case of individual herein above, then the capital gain on selling such share in the open market will be Rs 500 (1500-1000) and applying tax rate of 14.3% thereon, the tax will be Rs 72/- with the result the net amount available to such corporate post tax (Rs. 1428) will be higher by Rs 81 i.e Rs. 1,428/- as against Rs. 1,347/- in case shares are offered in the buy back. However, such corporate shareholder still will have the right to set off the purchase price of Rs. 1,000/- as capital loss against any other capital gain which may give it a benefit of Rs 143. Thus, the net benefit to a corporate in case shares are offered for buy back shall be Rs. 62 (Rs. 143-81).
4. The above analysis is tabulated hereinbelow:

Buyback vs. Open Market Sale (LTCG) – Corporate Investors

C.2. Comparative analysis in case shares are held as short term capital asset

1. Further, if shares are held as short term, the benefit under buy back will be even greater as the effective tax cost of short term capital gain is 22.88% i.e higher that effective tax cost of long term capital gain 14.3%. A tabular summary in this regard is as under:

Buyback vs. Open Market Sale (STCG) – Corporate Investors

1. Thus, even if the shares are held as short term assets, the corporate shareholder will be better off in case shares are offered to tax under buy back as against in open market.

C.3. Summary: Corporate shareholders holding shares as capital assets

1. In view of the above analysis, it may be prudent for corporate shareholders to offer the shares in buy back irrespective of the nature of capital gain (short term or long term).

C.4. Corporate declaring Dividend (additional benefit under section 80M)

1. Further, it is relevant to point out that in the case of a corporate which normally declares dividend (particularly listed companies), offering shares in buy back scheme may lead to further additional advantage in view of the provision of section 80M of the Act, which allows for deduction of dividend income received by a company to the extent of dividend distributed by it. The amount received by the shareholder on buy back of share is deemed to be dividend in the hands of the shareholder and consequently, any dividend paid by the company out of such amount received on buy back of share will be eligible for deduction under section 80M of the Act. In the above example, in case the entire amount of Rs. 1800 received as dividend is distributed as dividend, such entire amount received on buyback of share will not be taxable in the hands of the shareholder.  Further, besides the benefit of premium of Rs. 300 being offered in the buy back, in addition thereto, such Corporate will also have the advantage of claiming the purchase price of the shares offered in the buy back as a capital loss (long term or short term depending upon the period of holding).

C.5. Shares held as stock in trade by Corporate

1. As noted above, even in case shares are held as stock in trade, the proceeds of buy back shall be treated as dividend income and additionally, the loss on account of purchase cost of shares shall be eligible for set off as a business loss. However, it may be noted that in the case of a Company, the loss arising in hands of a company consequent to purchase and sale of share is deemed to be a speculative loss except in the case of sch companies whose principle business is business in trading in share or banking or granting of loans and advances or whose gross total income consistent mainly of income chargeable under the head ‘income from house property’, ‘capital gain’ and ‘income from other sources’. 
2. Thus, in case of such companies where loss is deemed to be speculative loss, the benefit of set off of such loss against other normal income shall not be available. However, in case of companies whose principle business is business in trading in share or banking or granting of loans and advances or whose gross total income consistent mainly of income chargeable under the head ‘income from house property’, ‘capital gain’ and ‘income from other sources’, such companies shall be eligible to claim set off of such losses against normal income including against dividend income (arising consequent to buy back).

1. Implications in respect of Non-Resident Shareholders

1. The buyback is also going to be a big bonanza for non-resident investors (both Corporates and Individuals), particularly multinational companies as dividend income is taxable at much lower rate in the hands of non resident shareholders in view of the lower rates prescribed in Double Taxation Avoidance Agreement (DTAA) entered by India with various countries.
2. Under most DTAA’s, the definition of ‘dividend’ includes income from corporate rights which is subjected to the same taxation treatment as income from shares under the domestic laws of the Country of which the Company making the distribution is a resident. In other words, income from corporate rights, which are subjected to same tax treatment as income from shares (i.e. as dividend income) under the domestic law of the Country of which the Company is making distribution, shall also be considered as ‘dividend’ under DTAA and concessional tax rates prescribed under DTAA may said to be applicable. Considering such definition of ‘dividend’ in the DTAA’s, the income from buy-back, which are deemed as dividend income under the domestic law of India, could also be contended to be ‘dividend’ for the purpose of DTAA as well. Consequently, the concessional rates prescribed under the DTAA for taxability of dividend income shall also be applicable.
3. As per the DTAAs, the rate of tax on dividend income for residents of countries like Hong Kong, Mauritius[1], Myanmar, Saudi Arabia, Nepal[2] is only 5%, for residents of countries like UAE, France, Germany, Japan, Netherland, South Africa, Oman[3], Kuwait, Cyprus the tax rate applicable on dividend income is only 10%. For residents of Singapore[4], Australia, New Zealand, Canada[5], Italy[6] it is 15% and so on is the case for many other countries. Further no surcharge, cess etc. over and above the rates so prescribed is applicable.
4. Accordingly, in the case of a resident like Hong Kong, the tax on the total consideration on buy back of Rs.1,800 per share will be just Rs. 90/- with post tax amount available being Rs 1,710 -a net gain of about Rs. 210 per share over and above market price of Rs 1500. Further, such shareholder will also be entitled to claim the cost of purchase of such share as a capital loss against any other capital gain.
5. Similarly, in the case of a resident like UAE where tax rate on dividend income is 10%, the tax on the total consideration on buy back of Rs.1,800 per share will be just Rs. 180 with post tax amount available being Rs 1,620 – there will be a net gain of about Rs.120 per share over and above market price of Rs 1500. Further, such shareholder will also be entitled to claim the cost of purchase of such share as a capital loss against any other capital gain.
6. The same benefit will also be available to FII’s (Foreign Institutional Investors) and FPI’s (Foreign Portfolio Investors) as the dividend income will be taxable at the rate prescribed under the Treaty with the country of such FII and FPI with the additional benefit of claiming the capital loss in respect of purchase/cost price of the shares so offered in the buy-back against any other capital gain income.
7. In the case of residents like Hong Kong, the apparent tax advantage on buyback will be about 10% plus, as dividend income will be taxed @ 5% and benefit of capital loss will be 12.5% plus applicable surcharge and education cess. (This advantage will be much higher in case the shares offered in the buy-back are held for a period more than 12 months for listed companies resulting into the short-term capital loss which is taxable @ 20% plus applicable surcharge and education cess).
8. It may be relevant to point out that before this amendment by the Finance Act (No. 2), 2024, deeming consideration of buy-back of shares as dividend income, the company buying back shares itself was required to pay tax at the rate of 20% plus applicable surcharge and education cess on buyback of its shares under section 115QA of the Income Tax Act, 1961. This tax on buyback was applicable for buyback from all shareholders irrespective of the status of the shareholder being a resident or a non-resident.
9. Thus, with the buy-back of share being taxed as dividend income, it is now a double bonanza for non-resident shareholders including Multi-national Companies which have subsidiary companies incorporated in India.  On the contrary, for resident individual shareholders, despite premium of about 20% being offered, offering shares in buy-back may still be a loss-making proposition. 

Conclusion

1. In conclusion, the buy-back, despite a premium of Rs. 300 i.e. over and above 20% of the present market value, apparently is a loss-making proposition for resident individual shareholders (except in a few cases of low income) but at the same time, a big bonanza for Corporates and non-resident shareholders.

[1] Subject to the shareholder being a company which holds at least 10% of the capital; else tax rate is 15%

[2] Subject to the shareholder being a company which holds at least 10% of the shares; else tax rate is 10%

[3] Subject to the shareholder being a company which holds at least 10% of the shares; else tax rate is 12.5%

[4] In case shareholder is a company holding minimum 25%, then tax rate is 10%

[5] Subject to the beneficial owner of dividend being a company which controls directly or indirectly 10% of the voting power

[6] Subject to the shareholder being a company which holds at least 10% of the capital