The Infosys buyback has sparked excitement, but Zerodha CEO Nithin Kamath warns of a stealth tax risk many investors miss. Here’s how to avoid unintended liabilities.
Infosys Buyback: Key Details
Infosys’s ₹9,300 crore buyback offers ₹1,850/share—a premium to market price. While buybacks typically signal confidence, post-2019 tax rule changes complicate profits for retail investors.
The 2019 Tax Rule Change
Before 2019:
– Investors paid capital gains tax on buyback profits.
After 2019 (Section 115QA):
– Company pays 20% tax + surcharge on (buyback price – issue price).
– Investors receive tax-free proceeds—but with a catch.
Nithin Kamath’s Tax Trap Warning
Problem: Post-2019 buyers lose cost-base adjustment benefits.
– Pre-2019 shares: Tax-free exit; no future implications.
– Post-2019 shares: Buyback is tax-free, but original purchase price remains for future capital gains.
Example:
– Bought in 2020 at ₹1,200 → Buyback at ₹1,850 (tax-free).
– Later sell at ₹2,000: Gains calculated from ₹1,200, not ₹1,850 → Higher tax.
Investor Action Plan
- Pre-2019 holdings: Ideal for tax-free buyback exits.
- Post-2019 holdings: Compare open-market sale (lower tax) vs. buyback.
- Consult an advisor: Rules are complex—expert help avoids surprises.
Key Takeaway
Buybacks aren’t equally tax-efficient for all. Check your acquisition date before deciding.
