Infosys Buyback: Smart Ways to Save Tax Through Capital Loss Adjustment in Your ITR

On 14 November 2025, Infosys Limited announced its largest‑ever share buyback of ₹18,000 crore. Buying back shares means the company will repurchase its own stock from shareholders. For investors, this is a big deal. It offers a chance to get cash out or reshuffle their holdings. But there’s a twist when it comes to tax time. In your annual income tax return (ITR), the gains or losses from this buyback need careful handling. That’s where smart tax planning comes in. 

Understanding how to use any capital losses you’ve made elsewhere can help reduce your tax bill. Let’s explore the key facts behind this buyback, show how tax rules apply, and explain how you can use loss adjustment to your advantage.

Understand Infosys Buyback

On 11 September 2025, Infosys approved its largest‑ever share buyback. The company proposed to buy up to 10 crore equity shares (about 2.41% of its paid‑up capital) at a price of ₹1,800 per share, aggregating up to ₹18,000 crore.

A buyback means the company repurchases its own shares from existing shareholders. It reduces the number of outstanding shares and can boost earnings per share (EPS). The offer price carried a premium over the market price. The record date was fixed as 14 November 2025 for eligibility to participate in the buyback.

Unlike dividends, which are regular payouts, a buyback offers an exit opportunity at a fixed price, or a potential upside if the company holds value and earnings growth picks up. It also signals that the company believes its shares are undervalued or that it has surplus cash.

Tax Implications of Buyback

Recent changes in tax law have significantly altered how buybacks are taxed in India. As per the Income‑tax Act, 1961 (amended by the Finance (No. 2) Act 2024), from 1 October 2024 onwards, the entire consideration received by a shareholder in a buyback is treated as dividend income for tax purposes.

Section 46A of the Act states that for a buyback, the cost of acquisition is deemed to be nil for computing capital gains, meaning one ends up with a capital loss equal to the acquisition cost.

Thus, when a shareholder participates in the buyback, the amount received is taxed as a dividend (at the shareholder’s applicable slab rate), but the cost of the shares becomes a capital loss that can only be used against future capital gains, not against the dividend income.

For example, suppose you tender your shares at ₹1,800 each. That ₹1,800 becomes dividend income. If your original cost was ₹900 per share, you have a capital loss of ₹900. The dividend tax is immediate; the benefit of the capital loss is deferred for future years when you have capital gains to offset.

Understand Capital Loss

A capital loss occurs when you sell (or, in this case, tender) shares at a value less (or treated as less) than your original cost. Because the new law treats buyback proceeds as a dividend and sets the cost of acquisition as nil for gains computation, the full cost becomes a loss.

If you held the shares for 12 months or less, the loss is a short‑term capital loss (STCL). If you hold them for more than 12 months, it becomes a long‑term capital loss (LTCL).

Short‑term losses can be set off against both short‑term and long‑term gains in the same year (with carry‑forward up to 8 years). Long‑term losses, however, can only be set off against long‑term capital gains, with carry‑forward for 8 years.

Thus, while participating in the buyback creates a loss that may reduce future tax on capital gains, the immediate tax burden on the dividend portion remains.

Adjusting Capital Loss to Save Tax

Under the current regime, you cannot use the capital loss from the buyback to offset the dividend‑treated income. But you can use it to reduce future capital gains tax. Here’s how:

• First, record the full cost of acquisition as a capital loss in your ITR for the year of buyback.
• Next, when you earn capital gains in future years (either short‑term or long‑term, depending on holding period), you can set off those losses (from the buyback) against those gains.
• For STCL, it can set off against both STCG and LTCG. For LTCL: only against LTCG. Unused losses can be carried forward up to 8 years.

Reporting Infosys Buyback in ITR

When you participate in the buyback, you must report it correctly in your Income Tax Return (ITR).

• Use Form ITR‑2 (if you don’t have business income) or ITR‑3 (if you do have business income).
• Under “Income from Other Sources”, declare the consideration received from the buyback (treated as dividend income).
• Under “Capital Gains”, report the cost of acquisition and classify the loss as STCL or LTCL. This appears under Schedule CG.
• Maintain documents: contract notes for tender, demat statement showing shares accepted, proof of buyback price ₹1,800, etc.
• Avoid common mistakes: failing to report the full amount as a dividend, wrongly treating the loss as deductible against the dividend, and misclassifying the holding period.
  Also, if tax was deducted at source (TDS) by the company, ensure you claim credit in ITR. For the Infosys buyback, TDS rules apply for resident and non‑resident shareholders.

Tips for Smart Tax Planning

• If you hold lots of loss‑making shares, consider selling those before the buyback proceeds or aligning them so you can use the losses effectively.
• Keep proper records of your cost of acquisition, holding period, and share ledger, as they will matter for future set‑off.
• Use the capital loss carry‑forward option: you have up to 8 years to offset the loss. Don’t lose this benefit by failing to file ITR or misclassifying the loss.
• Before tendering into the buyback, compare your net proceeds (after tax) vs selling in the open market, and then using the normal capital gains route; sometimes, the open market sale may yield a better post‑tax outcome. For example, analysts highlighted that in some cases, the buyback tax burden offsets the premium received.
• Consult a tax advisor if you hold large quantities, are non‑resident, or if you hold shares via complex structures (such as ADSs). Tax treaties (DTAA) may come into play for non‑resident shareholders.

Wrap Up

The Infosys buyback offers a compelling cash‑return opportunity, but the tax rules make it less straightforward than it appears. While you receive cash now, you face immediate tax on what is treated as dividend income. The cost of acquisition becomes a capital loss, offering future tax relief but only when you generate capital gains. 

Smart tax planning, tracking costs, holding periods, and using loss carry‑forward can help you maximise your benefit. Always compare the buyback route to selling in the open market and report everything correctly in your ITR to stay compliant and efficient.

Disclaimer: The content shared by Meyka AI PTY LTD is solely for research and informational purposes. Meyka is not a financial advisory service, and the information provided should not be considered investment or trading advice.