TCS or Infosys Buyback Announced? Stop! The New 'Buyback Tax' Rule That Cuts Your Profits by 30%

TCS or Infosys Buyback Announced? Stop!

For years, Share Buybacks were the darling of the Indian stock market. When companies like TCS, Wipro, or Infosys announced a buyback at a 20% premium, investors rushed to tender their shares.

Why? Because the profit was Tax-Free in the hands of the shareholder. The company paid the tax, not you.

This Golden Era ended on October 1, 2024.

The Finance Minister introduced a new rule that flips the tax burden onto YOU. If you participate in a buyback today (2026), you might end up paying double the tax compared to selling on the open market.

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The Old Rule vs. New Rule

Before Oct 1, 2024

• Company: Paid 20% Buyback Tax.
• Shareholder (You): Received the money Tax-Free (Exempt income u/s 10(34A)).

After Oct 1, 2024 (The Trap)

• Company: Pays No Tax.
• Shareholder (You): The ENTIRE proceeds (Sale Price) are treated as "Deemed Dividend."
• Tax Rate: It is added to your annual income and taxed at your Slab Rate. If you are in the 30% bracket, you pay 30% tax + Cess.
• TDS Warning: The company will deduct 10% TDS before crediting the money to your bank account.

💸 The Calculation: Why It Hurts

Let's say you bought TCS at ₹3,000 and the Buyback Price is ₹4,500.

• Scenario A (Open Market Sale): You pay 12.5% LTCG tax only on the profit (₹1,500). Tax = ₹187.5.
• Scenario B (Buyback Tender): You pay 30% Income Tax on the FULL Amount (₹4,500). Tax = ₹1,350.

Verdict: You pay nearly 7 times more tax in the Buyback option!

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The "Capital Loss" Consolation Prize (And Its Flaw)

The government says: "Since we taxed the full amount as dividend, your original buying price (₹3,000) is now a Capital Loss."

You might think, "Great! I can use this loss to cancel out the tax." WRONG.

⚠️ The Set-Off Trap

Under Indian Tax Law, Capital Loss can ONLY be set off against Capital Gains.

• You CANNOT use this ₹3,000 loss to reduce the tax on the Buyback Dividend income.
• You CANNOT use it to reduce your Salary tax.
• You can only use it if you have other profits from selling stocks or property this year. If not, this loss is useless cash-flow wise (carried forward for 8 years).

Do The Math

Don't blindly tender your shares anymore.

Before you click "Apply" on your Zerodha/Groww app, check your tax slab. If you are in the 20% or 30% bracket, selling your shares in the open market (paying 12.5% LTCG or 20% STCG) is almost always smarter than accepting the "premium" buyback price.

(Disclaimer: This article is for informational purposes only. Tax laws are subject to change. Please consult a Chartered Accountant (CA) for your specific tax liability.)