Infosys Buyback Tax Trap? New Rules Could Cost YOU Dearly - Should You Participate?

Recent amendments to Indian tax laws have significantly altered the taxation of company share buybacks. Previously, companies paid a tax on buyback amounts, and shareholders received proceeds tax-free. However, under the new regime, money received by a shareholder from a buyback is now treated as dividend income, taxable at the individual's applicable income tax slab rate. Crucially, the cost at which you acquired the shares is no longer deducted from the buyback proceeds; instead, this cost is considered a capital loss (short-term or long-term depending on the holding period), which can be used to offset capital gains.

For an upcoming Infosys buyback, participation should be evaluated carefully. It may be tax-efficient if your total taxable income, including the buyback dividend, does not exceed the threshold for the Section 87A rebate (meaning your tax liability on the dividend could be nil). Tax efficiency also improves if you have existing taxable capital gains that can be reduced by the capital loss generated from tendering shares in the buyback.

Impact This news directly impacts Indian investors considering participation in the Infosys buyback and potentially other future buybacks. It requires investors to understand the new tax implications for personal financial planning and investment decisions. The potential tax burden or benefit is significant, making informed decisions crucial. Rating: 7/10

Terms Explained: Dividend Income: Income received by shareholders from a company's profits, distributed by the company. In this context, buyback proceeds are now classified as such. Cost of Acquisition: The original price paid by an investor to purchase shares. Capital Loss: Occurs when an asset is sold for less than its purchase price. This loss can be used to reduce taxable capital gains. Section 87A Rebate: A tax rebate in India available to individuals with total taxable income up to a certain limit, which can reduce their tax payable to zero.