Infosys’s full mathematics of 18,000 crore buyback, how will the burden of more tax be on the pockets of investors?:

News India Live, Digital Desk: Infosys, the country’s second largest IT company, is going to give a gift to its investors once again. The company has announced share buyback of Rs 18,000 crore. Investors are happy with this news, but a screw is hidden in this happiness – and that is ‘tax’.

Due to the new tax rules, this time investors may have to pay more tax than before, even if this tax does not go directly from their pockets. Let’s understand this whole matter in easy language.

First of all know what is share buyback?

When a company purchases its own shares back from the market, it is called share buyback. Companies do this so that the number of shares present in the market decreases, which increases the EPS) per share and supports the share price. Infosys will buyback with ‘Open Market Route’ at a maximum price of Rs 1,850 per share.

Then where is the tax screw?

The screw is in a new rule in 2019.

• Old Testament (Before 2019): When a company used to buyback, investors had to pay ‘Capital Gains Tax’ on the profits made. If you sold the shares for more than a year, then Long Term Capital Gains (LTCG) tax was levied and if sold before a year, Short Term Capital Gains (STCG) tax. This tax investor used to pay himself according to his income.
• New rule (after 5 July 2019): Now the rules have changed. Now the investor does not have to pay any tax. His place, the company on the entire buyback amount ‘Buyback Distribution Tax’ (BDT) Have to give. This tax is about 23.3%.

How did investors affect?

It is nice to see that the investor does not have to pay any tax directly and the earnings from buyback will be tax-free in their hands. But the real story is something else.

Earlier only those investors had to pay taxes, who used to sell their shares in buyback and earn profits. But now, the company will have to pay tax on the entire Rs 18,000 crore. This tax company will pay only with its profits. This simply means that the company’s profits will be low, which will finally affect all shareholders.

Understand this from an example:

Suppose, Infosys issued a stock for Rs 100 and is now buying back for Rs 1850. So, there was a profit of Rs 1750 per share. Under the new rule, the company will have to pay a tax of about 23.3% on this Rs 1750 to the government. This tax company will repay, but this money is ultimately a part of the shareholders’ profits.

Earlier investors used to pay 10% or 15% tax according to their tax slab, but now the flat is being taxed at 23.3%, which the company is paying. This reduces the returns in the hands of investors effectively. This is the reason that even though the money coming in your hand is tax-free, the burden of overall tax has already increased.