The Infosys share buyback has caught investors’ attention once again, with the record date set for November 14, 2024. While the buyback offers a lucrative exit opportunity, investors must also understand its tax implications and the smart ways to save tax using capital loss adjustment under Income Tax rules.
Here’s a detailed breakdown of how the taxation works and how shareholders can legally reduce their tax burden.
How Infosys Buyback is Taxed
Under the new tax framework applicable to buybacks after October 1, 2024, the income received by shareholders is now taxable in their hands.
The amount received through the buyback is treated as a “deemed dividend” under Section 2(22)(f) of the Income Tax Act, 1961, and taxed under the head “Income from Other Sources”.
This means:
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The entire buyback amount (not just the profit portion) is taxable.
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The cost of acquisition of the shares cannot be deducted when calculating this taxable income.
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The tax rate applicable depends on your individual income tax slab and chosen regime (old or new).
Example:
If you tender 100 Infosys shares in the buyback and receive ₹1,80,000, this entire amount will be treated as income and taxed as per your applicable slab rate.
Expert View:
“With respect to buybacks undertaken on or after 1 October 2024, the income received by shareholders is deemed to be a dividend under Section 2(22)(f) and is chargeable to tax under ‘Income from Other Sources’. Accordingly, for resident individuals, the proceeds are taxable at their respective slab rates,” said CA Dr. Suresh Surana.
How to Save Tax After Buyback: The Capital Loss Adjustment Route
Although the buyback proceeds are fully taxable, investors can still save tax through capital loss adjustment.
Here’s how it works:
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The cost of acquisition (the original purchase price of your Infosys shares) can be treated as a notional capital lossunder Section 46A.
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This capital loss can then be set off against future capital gains from other assets like equity, property, or mutual funds.
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You can carry forward this unabsorbed loss for up to 8 years, as per Section 74 of the Income Tax Act.
Example:
Suppose you bought Infosys shares for ₹1,20,000 and received ₹1,80,000 from the buyback. You pay tax on ₹1,80,000 as per your slab rate, but you can record a notional capital loss of ₹1,20,000, which can be adjusted against your future capital gains.
Set-Off and Carry Forward Rules You Must Know
According to tax laws, capital losses can only be adjusted against capital gains, not against income from salary, business, or other sources.
Here’s how the set-off works:
| Type of Capital Loss | Can Be Set Off Against | Carry Forward Period |
|---|---|---|
| Short-term Capital Loss | Both short-term and long-term capital gains | Up to 8 years |
| Long-term Capital Loss | Only against long-term capital gains | Up to 8 years |
Important Conditions:
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You must file your ITR before the due date (under Section 139(1)) to carry forward losses.
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The loss must be reported in your ITR, specifically under Schedule CG (Capital Gains).
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You can only claim the capital loss adjustment if the corresponding buyback income is reported under “Income from Other Sources”.
How to Report Capital Loss in ITR
From FY 2024–25 onwards, the Income Tax Return (ITR) forms have been updated to include a distinct row in Schedule CG for reporting capital losses arising from buybacks.
You’ll find separate sections for short-term and long-term capital losses linked to share buybacks.
Tax Expert Insight:
“The ITR form (for returns to be furnished w.e.f. FY 2024–25) provides a distinct row in Schedule CG for reporting capital losses arising from payments received during share buybacks. These losses are allowable provided the corresponding deemed dividend income is reported under ‘Income from Other Sources’, in line with Section 2(22)(f),” explained Dr. Surana.
This ensures proper disclosure and smooth claim of set-off benefits in subsequent assessment years.
Infosys Buyback: Key Tax and Set-Off Rules at a Glance
| Aspect | Details |
|---|---|
| Record Date | November 14, 2024 |
| Tax Treatment | Entire buyback amount treated as deemed dividend under Section 2(22)(f) |
| Tax Head | Income from Other Sources |
| Tax Rate | Individual slab rate |
| Cost of Acquisition | Not deductible against buyback income |
| Capital Loss Treatment | Treated as notional capital loss under Section 46A |
| Set-Off Rules | Can be adjusted only against capital gains |
| Carry Forward | Up to 8 years under Section 74 |
| ITR Filing Condition | Must file ITR before due date to carry forward loss |
| Reporting in ITR | Schedule CG (separate row for buyback-related capital loss) |
While the Infosys buyback may seem less tax-efficient under the new rules, investors can still minimize their tax liability through strategic capital loss adjustments.
By treating the purchase cost of shares as a capital loss, and ensuring proper ITR reporting, you can effectively offset future capital gains and reduce overall tax outgo.
Pro Tip: File your ITR on time and maintain clear documentation of your share purchase and buyback details to claim the set-off smoothly in future years.
Disclaimer:
This article is for informational purposes only and does not constitute financial or tax advice. Investors should consult a qualified tax professional or SEBI-registered financial advisor before making investment or tax-related decisions.