Buyback: To Tender or Not to Tender

A record ₹18,000 crore buyback sounds like a jackpot, but the Taxman has rewritten the rules. For many investors, tendering shares could mean trading a headline premium for a tax headache. The question is not ‘should you participate?’ anymore; it is ‘what will you really take home?’ [EasyDNNnews:PaidContentStart]

The announcement landed on the trading terminals with the quiet force of a tidal wave. On September 11, 2025, the board of Infosys Ltd., India’s secondlargest IT services company, approved a landmark decision: its biggest-ever share buyback programme, amounting to a colossal ₹18,000 crore. The offer, set at ₹1,800 per share—a premium of around 20 per cent from its prevailing market price—aims to repurchase approximately 2.41 per cent of its paid-up capital via the tender offer route, since, effective from April 1, 2025, companies in India can no longer buy back shares from the open market, as per regulations passed by the Securities and Exchange Board of India (SEBI). This pushed the share price of Infosys by almost two per cent the following trading day and by three per cent in the next one week of trading. 

Yet, for the millions of retail and institutional shareholders who form the bedrock of India’s most widely held stock, this generous corporate action is no longer a straightforward windfall. It is the first major test of a new, and maybe punishing, tax regime that has fundamentally reshaped the calculus of wealth creation in buybacks. 

This is not just Infosys’s story. It is a live case study for every Indian investor, a complex puzzle where a company’s confidence clashes with a new fiscal reality. The central question has shifted from ‘Should I participate?’ to ‘After the taxman’s share, is there anything left for me?’ 

The Buyback Blueprint: A Record Return Amidst New Rules 

Infosys's move is a powerful execution of its stated capital allocation policy, which promises to return 85 per cent of its free cash flow to shareholders over a five-year period through dividends and buybacks. 

▪️Size: ₹18,000 crore (a record for the company)
▪️Buyback Price: ₹1,800 per share
▪️Method: Tender Offer (This is now the only method allowed, as SEBI has completely phased out the open market route for buybacks)
▪️Record Date: To be announced. This is the cut-off date that determines which shareholders are eligible to participate. 

A share buyback, or repurchase, is a corporate action where a company buys back its own shares from existing shareholders, reducing the number of shares available in the market. Companies do this for strategic reasons: to boost shareholder value by increasing Earnings Per Share (EPS), to make efficient use of idle cash, and to signal that the stock is undervalued, demonstrating management’s confidence in the company’s future. The companies can hold on to such shares as part of their ‘treasury’ stocks, which can be reissued later. 

The Tax Earthquake: How Buybacks Became a Burden
The Union Budget of July 2024 brought with it a tremor that fundamentally altered the taxation of buybacks. From October 2024 onwards, the long-standing framework that had made buybacks one of the most tax-efficient ways to return capital was dismantled and replaced with a regime that shifts the entire burden squarely onto the shareholder. 

Earlier, the system worked quite differently. Under the old regime, companies were required to pay a Buyback Distribution Tax (BDT) at an effective rate of about 23.3 per cent, which included the base 20 per cent plus surcharge and cess. For investors, however, the arrangement was almost perfect: the proceeds from a buyback landed in their accounts completely tax-free. The company absorbed the levy, while shareholders enjoyed an efficient, clean return of capital. 

That world ended in October 2024. Under the new rules, the company no longer pays any tax on a buyback. Instead, the entire amount received by the shareholder is now treated as dividend income, taxable at the individual’s slab rate. For high-income investors, this means facing effective tax rates that can go well north of 30 per cent. In one sweeping move, what was once a corporate liability has been shifted onto the personal income statements of investors. 

The difference is not just theoretical—it shows up painfully when you run the numbers. Take the case of an investor who bought shares at ₹1,200 and tenders them in a buyback at ₹1,800. The full ₹1,800 is treated as dividend income, on which the company deducts 10 per cent TDS upfront. A 30 per cent slab investor, however, will ultimately pay tax of around ₹540 (30 per cent of ₹1,800), leaving them with only about ₹1,260 after taxes. When compared with the original cost of ₹1,200, the net gain is a meagre ₹60, translating to an effective tax rate of nearly 90 per cent (₹540 divided by ₹600).

There is some consolation in the form of a bookable capital loss because the system deems the shares to have been sold at a cost of zero, the ₹1,200 originally paid can be claimed as a long-term capital loss. This can be set off only against other long-term gains, giving at best a tax credit of about ₹150 (12.5 per cent as long-term capital gain of ₹1,200). Even after factoring this in, the net tax outgo is ₹390 (₹540 minus ₹150), leaving the investor with a post-tax amount of ₹1,410 (1,260 plus 150).

For capital losses brought forward from before April 1, 2026, taxpayers are permitted to set them off against any capital gain (both long-term and short-term) during tax years beginning on or after April 1, 2026.

Now compare this with simply selling shares in the open market. Suppose the prevailing market price is `1,700. The investor makes a profit of `500, which, if classified as a longterm gain, is taxed at 12.5 per cent. The tax liability here is just about `62.5 (12.5 per cent of (1,700 minus 1,200)), leaving a net receipt of `1,637.5—substantially better than tendering shares in the buyback. 

The new regime, therefore, flips the very logic of buybacks on its head. For taxable individuals, particularly those in higher income brackets, buybacks are no longer the attractive route they once were. Instead, selling in the secondary market not only provides greater flexibility but also ensures a far more tax-efficient outcome. What was once a favoured instrument of capital return has, in effect, become a tax trap for investors. 

The new rules introduce complexity and potential pain, especially for investors in higher tax brackets. Let us break down the financial implication with an example. 

This new system makes buybacks significantly less efficient for high-income investors compared to the previous regime. It also alters the calculus versus simply selling shares on the open market, where long-term capital gains are taxed at a flat 12.5 per cent (above `1.25 lakh) or short-term gains at 20 per cent. 

To Tender or Not to Tender?
The decision is no longer automatic. Market experts are advising a calculated approach: 

▪️For the Short-Term Trader/Arbitrageur: The opportunity still exists if the market price trades at a significant discount to the buyback price, creating a spread. However, this spread must now be large enough to offset the high tax cost. If the premium offsets the tax outflow, the buyback may still be attractive compared to selling on the exchange.
▪️For the Long-Term Investor: The equation changes completely. Long-term shareholders should consider it as a non-event and should concentrate on the fundamentals of the company. If they are good, it is better to continue to hold the stock, and if not good, better to offload in the market. Tendering shares triggers an immediate and high tax liability. Holding on allows them to benefit from the company's fundamental growth and future dividends, which also qualify for the Section 87A rebate if total income is below `7 lakh (as per old regime slabs; new regime may vary). 
▪️For the Small Retail Investor: Those with total income below the taxable limit or in the lowest slab can claim a refund of the TDS, making the buyback still very attractive. They must, however, file their income tax returns to do so. 
▪️The Acceptance Ratio Risk: This remains a key variable. The offer is often oversubscribed (it may vary this time), meaning only a proportion of tendered shares are accepted. An investor must calculate the potential post-tax return on the likely accepted quantity. 

The Final Tally: A New Era for Investor Calculus
The Infosys ₹18,000 crore buyback represents a tale of two distinct eras in Indian investing. On one hand, it is a powerful signal of the company’s robust corporate health, offering a record-breaking return of capital to shareholders. On the other hand, it signifies the emergence of a more complex reality for Indian investors. The 2024 tax change has altered the landscape, eliminating the simple, tax-free arbitrage play that was once a go-to strategy. Today, shareholders must become their own tax advisors, carefully modelling their net gain based on their individual income slab. The buyback offer must be evaluated not just against the market price, but also in comparison with the alternative of long-term capital gains tax. 

The message for investors is clear: Calculate your post-tax benefit and then decide whether to participate. Don’t be swayed by the headline premium alone. Assess the acceptance ratio and weigh it against your belief in Infosys’s long-term prospects. In this evolving fiscal landscape, the most lucrative corporate actions demand careful, personalized scrutiny. The Infosys buyback is now a test of financial acumen, not just a gift and this applies to all the future buyback issues. 

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