What is the Tax Applicability on Buyback of Infosys shares?
- TDS : The full amount received by shareholders under buyback (on or after 1-Oct-2024) is treated as dividend under a new clause 2(22)(f) of the Income Tax Act. This income is taxed in the shareholder’s hands under the head “Income from Other Sources.” Accordingly, the amount paid by company towards accepted buyback quantity shall be subject to TDS @ 10% for resident individuals.
- Capital Loss Treatment : For capital gain purposes, under Section 46A, the “consideration received” in buyback is deemed to be zero. As a result, shareholders generate a capital loss equal to their cost of acquisition of those shares.
The detailed announcement by the company can be found here.
@Muqtadir_Dandekar Another important clarification needed is regarding the nature of the capital loss. Specifically, I would like to understand whether this loss would be classified as a Short-Term Capital Loss (STCL) or a Long-Term Capital Loss (LTCL), based on the holding period. This will help determine how the loss can be carried forward and appropriately set off against future STCG or LTCG.
The law does NOT change the definition of long-term or short-term asset, it is determined ONLY by holding period.
The buyback tax changes do NOT affect the classification of STCL & LTCL.
@Muqtadir_Dandekar Expected a clear answer to it. Anyway based on what I could understand, if my holding period of the buyback shares is less than 1 year; the initial investment that I made into Infosys will be considered in STCL and the holding period of the buyback shares is more than 1 year then the intial investment would be considered as LTCL correct.