Copyright © HT Digital Streams Limited All rights reserved. Jas Bardia 5 min read Oct 24, 2025, 05:30 IST Promoters of the IT services company would have to shell out more tax and earn less money in hand if they were to sell their shares through the buyback rather than through the stock exchanges. (Bloomberg) Summary The decision is driven primarily by an amendment to the Income Tax Act that would classify buyback proceeds as dividend income. The decision by Infosys Ltd’s promoters to reject its biggest buyback of ₹18,000 crore points to an underlying concern, that of taxation. Promoters of the country’s second-largest information technology (IT) services company, including founders Nandan Nilekani, NR Narayana Murthy, SD Shibulal and S. Gopalakrishnan, will have to shell out more tax and earn less cash in hand if they sell their shares through the buyback rather than through the stock exchanges. Currently, the promoters and their group own 13.05% of the company’s shares. On September 11, Infosys announced that it would buy back 100 million shares at a price of ₹1,800 per share. It ended Thursday at a share price of ₹1,529 per share, translating into an apparent profit of ₹271 per equity share. “However, the tax implications arising from such buyback of shares in the case of Indian shareholders are likely to be more than the premium offered by the company under the proposed buyback scheme. This may be one of the reasons why major shareholders may opt out of the buyback,” says Ketan Dalal, managing director of Katalyst Advisors, a boutique and advisory company in Mumbai. According to a July 2024 amendment to the Income Tax Act, “any payment made by a company on the purchase of its own share from a shareholder is deemed to be dividend income in terms of section 68 of the Companies Act, 2013.” Key Takeaways The primary reason Infosys promoters are skipping the ₹18,000 crore buyback is a tax amendment in January that treats buyback proceeds as dividend income. The sale of shares in the open market allows the promoters to treat the income as long-term capital gain, subject to a lower effective tax rate that is applied only to the gain, not the entire sale amount. Despite the buyback’s premium of ₹271 over the market price, the higher tax makes an open market sale more profitable for the long-term shareholders. Some analysts interpret the decision as a sign of strong belief by the founders that the share’s true value is greater than the buyback price of ₹1,800. The promoters’ non-participation will lead to an increase in their post-buyback shareholding and is expected to increase the acceptance ratio for retail shareholders who choose to participate. This implies that the entire amount of ₹1,800 received by the shareholder through the buyback will be considered as dividend income in the hands of the shareholder. This does not take into account the price at which the promoters bought the Infosys shares. Tax Times Example of this. If a shareholder earns more than ₹1 crore annually, the effective tax rate on the shares will be 35.88%, which includes a base tax of 30% according to their income and the remaining as surcharge and cash. This implies that the shareholder will have R1 154 in hand for each share. However, if the shareholders take an alternative route and sell these shares in the open market on the stock exchange, the income will be charged as capital gain. The promoters are long-term shareholders of the company and therefore the applicable tax rate will be 14.95%, which includes a long-term capital gains tax of 12.5% and the remaining as surcharge and cash. This tax will be applicable on the difference between the sale price and the price at which the shares were purchased by the promoter. This means that if the promoters bought Infosys shares for ₹95 in 1993, the tax is applicable on ₹1,434. Shareholders will now receive ₹1,220 for each share, more than the amount they would have received by selling shares through the buyback. It also means that the long-term shareholder, in this case the promoters, will lose money despite the ₹271 premium over the current price from October 23. Katalyst’s Dalal added that tax on the sale of shares in the stock exchange could further reduce. “Grandfathering of FMV (fair market value) as at 31 January 2018 is also available, which will lower the capital gains tax even more for those who bought shares before 2018.” Long-term capital gains grandfathering is a provision that protects investors from being taxed on gains that accrued before a new tax law took effect, before capital gains on listed stocks were exempt for several years. The company said its promoters had withdrawn from the buyback in an update to the stock exchanges on Wednesday. Buyback Calculations “In terms of the Buyback Regulations, the Promoter and Promoter Group have the option to participate in the Buyback, under the tender offer. In this regard, the Promoter and Promoter Group of the Company expressed their intention not to participate in the Buyback by their letters dated 14 September 2025, 16 September 2025, 2012, 8 September 2025 and 8 September 2025 2019 2025,” the company said an update of the share said exchange on October 22. To be sure, the dates of the buyback have yet to be announced. Emails sent to Nandan Nilekani, NR Narayana Murthy, SD Shibulal and S. Gopalakrishnan on Thursday went unanswered till press time. While one expert pointed to a tax hurdle, at least two analysts said money was not the primary driver in the promoters withdrawing the buyback. “In my opinion, this is a good sign. This decision not to opt for the buyback also shows strong belief that the stock’s fair value is higher than ₹1,800. It also means that the promoters are not afraid of AI (artificial intelligence) hitting their share prices,” said Abishek Kumar, equity research analyst at JM Financial. Infosys shares have fallen 18.7% since the start of the year amid growing concerns that AI is eroding the revenue of the country’s biggest IT services companies as automation tools replace human workers and lead to lower billings. A second analyst said more people would subscribe to the buyback. “Not only will the shareholding of the promoters increase, but also the acceptance ratio among retail shareholders,” said Amit Chandra, vice president of HDFC Securities. Shareholder participation Assuming that all eligible shareholders participate in the buyback, the total shareholding of the promoters and members of the promoter group will increase to 13.37% after completion of the buyback from 13.05% of the pre-buyback total paid-up equity share capital of the company (as on the date of the public announcement). This is the Bengaluru-based company’s fifth buyback in eight years. Infosys had earlier spent ₹13,000 crore on its first buyback in 2017, followed by ₹8,260 crore in 2019, ₹9,200 crore in 2021 and ₹9,300 crore in 2022. Download the Mint News app to get daily market updates and live business news. more topics #Infosys #technology #IT companies #news Read next story
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