Infosys Ltd, India’s second largest IT company, announced its largest ever share buyback on 13 November 2025. The company plans to repurchase shares worth 18000 crore at a fixed buyback price of 1800 per share through the tender offer route. This price represents roughly an eighteen to nineteen percent premium over the market price at the time of the announcement.
With this buyback, Infosys aims to purchase up to ten crore fully paid up equity shares with a face value of five rupees each. This represents about two point four one percent of the company’s total paid up equity capital. The buyback size is large in value terms but small when compared to the number of shareholders who hold the stock. Infosys is held widely across the country by retail investors, mutual funds and institutions. This means demand for participation will be much higher than the number of shares the company is willing to accept.
Who Is Eligible for the Buyback
The record date to determine eligibility is Friday, 14 November 2025. Any investor who holds Infosys shares in their demat account on or before the record date is eligible. All shareholders whose names appear in the company register on this date can tender their shares for the buyback.
An important detail is that the promoters and the promoter group have chosen not to participate. This increases the available pool for public shareholders, but the number of potential retail and institutional participants is still very large.
Why Acceptance Ratio Will Be Low
Even though the buyback price looks attractive at 1800 per share, only a small portion of the shares tendered will be accepted. This is because the total number of shares being repurchased is limited. For a heavily held stock like Infosys, the typical acceptance ratio for retail investors in previous buybacks has often been in the range of ten to twenty percent. This means if an investor tenders one hundred shares, only around ten to twenty may actually be bought back. The rest return to the demat account and continue to trade at market prices.
Tax Treatment of the Buyback
This buyback falls under the new tax rules that apply to all buybacks conducted on or after 1 October 2024. The amount received from the buyback is considered deemed dividend income under Section 2 subsection 22 clause f of the Income Tax Act. This income is taxed at the individual investor’s slab rate. At the same time, the original cost of acquiring the shares becomes a capital loss. If the shares were held for less than one year the loss is classified as a short term capital loss. If held for more than one year the loss becomes a long term capital loss.
This is the most misunderstood part of buybacks. Many investors assume the difference between cost and buyback price is tax free. Under the current rules, it is not. Since the entire buyback amount is taxed as income, your real return depends on your tax bracket. The capital loss created can be used to offset other capital gains, but this benefit varies from person to person.
Why the Buyback Is Not Guaranteed Profit
At first glance, buying Infosys at a market price near 1550 and tendering at 1800 looks like easy money. However, several factors reduce the actual benefit.
First, the acceptance ratio is low. You cannot assume that all your shares will be accepted.
Second, the stock price often adjusts downward after the record date once the temporary demand from short term traders disappears. The shares that are not accepted in the buyback will continue to fluctuate normally in the market.
Third, the tax treatment reduces the effective gain because the entire buyback proceeds are taxed as ordinary income.
Fourth, corporate actions like these attract participation from mutual funds, HNIs, and arbitrage traders, reducing the likelihood that retail investors will get a high acceptance ratio.
Why It Becomes a Capital Loss Even Though You Sell Higher
Scenario
You buy Infosys at 1505
You tender in buyback at 1800
Normally, in stock trading, you would say:
Profit = 1800 minus 1505
This should be a capital gain.
But the new buyback tax rule breaks this logic.
The New Rule (after 1 October 2024)
Buyback proceeds are treated as:
1. Deemed Dividend Income
The entire 1800 is considered income from other sources
This is taxed at your normal slab rate.
2. Cost of acquisition becomes a Capital Loss
Your buy price (1505) becomes a capital loss, not a cost deducted from selling price.
This is written in Section 2(22)(f) of the Income Tax Act.
Why the Law Does This
Earlier, companies used buybacks to avoid dividend distribution tax.
So the government changed the structure to make sure the shareholder pays tax as ordinary income.
Since the entire buyback amount is taxed as income, the law must also give you a way to recognise the cost of your shares.
That is why your purchase cost (1505) is not deducted from 1800.
Instead it is recorded as:
Capital Loss
Short term capital loss if held for less than 1 year
Long term capital loss if held for more than 1 year
Example: Putting It Together
You tender 1 share.
Step 1: Taxable Income
You receive 1800
This becomes income from other sources
If your slab is 30 percent:
Tax = 540
Step 2: Capital Loss
Your cost (1505) becomes a capital loss
You can use this to offset other capital gains in the same year or the next eight years.
So Did You Make Profit or Loss?
You made a contractual profit, but the tax rules do not recognise it as capital gains.
Instead:
- You pay tax on entire 1800
- You get a capital loss of 1505
- Net benefit depends on your tax slab and how well you can use that capital loss
Why It Feels Wrong
Because your mind says:
“I bought at 1505 and sold at 1800. Obviously I gained 295.”
But the tax system says:
“You received 1800 as income. Your cost is recorded separately as a loss.”
Both statements are true in their own frameworks.
Buyback in Simple Terms
Buyback does not treat your tender as a sale for capital gains.
The tendered amount becomes income, and your cost becomes capital loss.
This is why:
- Your tender looks profitable
- But tax treatment converts it into income plus capital loss
- Effective profit is much lower
- Acceptance ratio will limit your total benefit anyway
When the Buyback May Still Make Sense
The buyback may still be useful in certain situations. Long term holders of Infosys can participate without changing their investment strategy. Investors with capital gains from other assets may want to use the capital loss created during the buyback to reduce their future tax burden. Some traders also use tender offer buybacks as low risk opportunities, but the return is usually small due to the limited number of shares accepted.
Final Thoughts
Infosys has announced a very large buyback in value, but the number of shares being repurchased is small compared to how widely the company is held. The premium looks attractive, but acceptance ratios and tax treatment significantly reduce the effective return. Investors should understand that tender offer buybacks are not guaranteed profit opportunities. The decision to participate should be based on investment horizon, tax position and realistic expectations regarding acceptance.
