Infosys , one of India's leading IT services companies, has announced a substantial Rs 18,000 crore share buyback program, igniting discussions about the company's priorities between shareholder returns and investments in artificial intelligence (AI) and innovation.

Buyback Details

The buyback, Infosys's fifth in eight years, aims to repurchase nearly 10 crore shares at an 18% premium to the current market price. This move is expected to boost key financial metrics such as earnings per share and return on equity, potentially creating immediate value for shareholders.

Financial Position

Infosys currently holds a robust cash reserve of over Rs 36,000 crore, positioning the company comfortably to execute the buyback while maintaining financial flexibility. The buyback amount represents approximately half of the company's total cash reserves.

Debate on Investment Priorities

The announcement has sparked a debate among industry observers and stakeholders:

Critics' Perspective

Some argue that Infosys should prioritize investments in AI and innovation over returning cash to shareholders. They point to the company's relatively low R&D spending of Rs 850 crore, which represents only 0.5% of its revenue. This figure pales in comparison to global peers like Accenture, which invests 1.8% of its revenue in R&D, and tech giants that allocate 12-25% of their revenue to innovation.

Supporters' View

Proponents of the buyback argue that it creates immediate shareholder value while the company simultaneously invests in AI capabilities. They highlight Infosys's efforts in AI development, including:

• The Topaz AI platform
• Training over 2.75 lakh employees in AI
• Deploying more than 300 AI solutions for clients

Future Outlook and Strategy

Infosys has provided a cautious revenue growth guidance of 1-3% amid AI-led market disruptions. To bolster its AI capabilities, the company plans to hire 20,000 freshers. This strategy suggests that Infosys is attempting to balance shareholder returns with investments in future technologies.

Industry Impact

The decision by Infosys, a bellwether of the Indian IT industry, to pursue a large share buyback while also focusing on AI development could set a precedent for other companies in the sector. It highlights the challenges faced by established IT services firms in navigating the rapidly evolving landscape of AI and automation while meeting shareholder expectations.

As the debate continues, stakeholders will be closely watching how Infosys balances its financial strategies with its technological investments in the coming quarters.

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.