Buybacks Rise In Popularity As New Tax Rules Draw Near

Buyback season may be upon us as new rules have shifted the burden of paying tax to shareholders.

While the earlier rules dictated that the tax would be paid by the companies making the buyback, this responsibility has been shifted to the investors under the 2024 Union Budget, with the income being taxed at slab rates.

Two companies have already announced buybacks ahead of Oct. 1, when the guidelines are set to come into effect, while more have scheduled board meetings to also consider the same.

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Three days after the budget, Welspun Living Ltd. announced a buyback of 1.26 crore shares at Rs 220 per share, which is at a premium of 20% to its closing price on the day of announcement.

A week after the budget announcement, Indus Tower Ltd. also announced a buyback of 5.67 crore shares at Rs 465 per share, which is at a premium of 4% to the shares' closing price on the day of the announcement.

Notably, the two have over 70% and 52% of the companies' respective equity held by promoters, respectively.

But while certain companies are known for regularly rewarding investors with buybacks, some of them may not be able to make such a move due to a legal technicality.

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The Companies Act of 2013 calls for a gap of one year between two successive buyback offers.

The following companies have chosen the buyback route to reward investors more than once since January 2021:

Of these, Eclerx Services Ltd., Ajanta Pharma Ltd., and SIS Ltd. cannot make another buyback before Oct. 1, due to the 12-month gap mandate.

While information technology giants are also known for rewarding their shareholders, the largest one by market capitalisation will be unable to hold one again before October.

Tata Consultancy Services Ltd. had announced a Rs 17,000-crore buyback in November 2023.

Prior to that, Wipro Ltd. had announced a Rs 12,000-crore buyback in June last year, following a Rs 9,300-crore buyback made by Infosys Ltd. in February.

The two remaining IT giants—Tech Mahindra Ltd. and HCL Technologies Ltd.—have gone the longest since their last buybacks in 2019 and 2018, respectively.

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