Infosys Limited, a global leader in next-generation digital services and consulting, has unveiled its largest-ever share buyback program, signaling a strong commitment to returning value to its shareholders. However, new tax regulations have introduced significant implications for participating shareholders.

Buyback Details

The IT giant has announced a share buyback worth Rs 18,000.00 crore, offering to repurchase up to 10.00 crore shares at Rs 1,800.00 per share. This price represents an 18.10% premium to the closing price of Rs 1,524.00 on the previous trading day.

Key Points of the Buyback

• Size: The buyback will cover 2.41% of Infosys' paid-up capital.
• Method: The repurchase will be conducted through the tender route, which requires shareholder approval.
• Historical Context: This marks Infosys' fifth buyback since its listing and the first tender offer since 2017.

New Tax Implications

Under new tax regulations, buyback proceeds are now treated as dividend income for shareholders rather than capital gains. This change has several important consequences:

1. TDS Deduction: Infosys will deduct 10% TDS (Rs 180.00 per share), resulting in a net payout of Rs 1,620.00 per share to shareholders.
2. Taxable Amount: Shareholders must pay tax on the full Rs 1,800.00 amount based on their income tax slab (20% or 30%).
3. Capital Loss Treatment: The original share cost becomes a capital loss that can only be offset against other capital gains, not dividend income.

Impact on Different Investor Categories

The new tax structure creates varying outcomes for different types of investors:

• Higher Tax Bracket Investors: Face disadvantages as they pay higher taxes on the full amount with limited relief.
• Small Investors in Lower Tax Brackets: May benefit more from the same structure.

Scale and Significance

The buyback affects approximately 26.00 lakh shareholders, making it a record Rs 18,000.00 crore share repurchase in terms of scale and impact.

Implications for Investors

Shareholders should carefully consider the tax implications when deciding whether to participate in the buyback:

1. Net Payout: While the offer price is Rs 1,800.00 per share, the actual amount received will be Rs 1,620.00 after TDS deduction.
2. Tax Liability: Investors must account for the full Rs 1,800.00 as taxable income, potentially increasing their overall tax burden.
3. Limited Capital Loss Benefits: The inability to offset the capital loss against dividend income may impact overall investment returns.

Investors are advised to consult with financial advisors to understand the specific implications based on their individual tax situations and make informed decisions regarding their participation in the buyback program.

As Infosys moves forward with this significant capital return initiative, market observers will be watching closely to see how these new tax implications affect shareholder participation and the overall success of the buyback program.

Infosys Limited (NSE, BSE, NYSE: INFY), a leading Indian IT services company, has announced a significant share buyback program amidst global challenges in the IT sector. The company's Board of Directors has approved a proposal to buyback equity shares worth ₹18,000 crore at a price of ₹1,800 per share.

Buyback Details

The buyback will comprise the purchase of 10,00,00,000 fully paid-up equity shares, representing approximately 2.41% of the company's total paid-up equity share capital. This move is seen as a strategic decision to enhance shareholder value in the face of current market conditions.

Industry Perspective

Industry veteran Trip Chowdhry has expressed support for Infosys' buyback decision, stating that it makes sense given the current global and sectoral challenges. These challenges include:

• Tariffs
• AI disruption
• Company reinvention needs

Chowdhry predicts that other major Indian IT companies are likely to follow suit with similar buyback strategies, given their cash positions and the current market backdrop.

Expected Impact

The buyback is expected to have the following effects:

• Reduce the overall share count
• Boost earnings per share over time
• Limited immediate stock gains of 15-20%
• Minimal liquidity impact of 2-3%

AI Strategy and Sector Outlook

Chowdhry offered advice on AI strategy for Indian IT firms:

• Avoid overcharging clients for AI projects
• Stay under regulatory radar, particularly in the U.S. market

He criticized the sector's weak earnings narrative and vague marketing approaches, specifically mentioning Infosys' Topaz platform. Chowdhry highlighted IBM as a better example of AI positioning, with full-stack solutions and global partnerships, while Indian companies remain focused on fragmented point solutions.

Recent Developments

Despite the challenges, Infosys has recently announced a collaboration with HanesBrands Inc. to drive innovation and efficiency. The ten-year alliance will leverage Infosys' AI-first platforms, including the Live Enterprise Automation Platform (LEAP) and Infosys Topaz, to modernize HanesBrands' core operations and enhance agility.

Conclusion

While Infosys has raised its guidance, Chowdhry believes the broader IT services sector still lacks a convincing growth story. The share buyback decision, coupled with strategic collaborations like the one with HanesBrands, demonstrates Infosys' efforts to navigate the challenging global IT landscape and create value for its shareholders.

The buyback is subject to shareholder approval through a postal ballot and other statutory approvals. Infosys has also applied for exemptive relief from the U.S. Securities and Exchange Commission due to conflicting regulatory requirements between Indian and U.S. laws for tender offer buybacks.