About a dozen companies, including technology major Infosys, which have active buyback programmes would benefit from the government's decision to not levy 20 per cent buyback tax imposed in this year's Budget.
Announcing yet another set of incentives to boost the economy, Finance Minister Nirmala Sitharaman said that listed companies which have announced buyback before July 5 (the Budget presentation day) will not be charged tax.
The decision was immediately cheered by India Inc., especially IT companies that over the years have stepped up payout ratios and used a mix of dividend and share buybacks to return profits to the shareholders.
Apart from Infosys, other IT companies such as TCS, Wipro and HCL technologies would also go ahead with their announced buyback programmes. Moreover, other companies such as Orbit Exports, Aurion Pro Solutions, Action Construction Equipments, Nava Bharat Ventures, GE Shipping and GEECEE Ventures could also explore the route that will not attract tax if announced before the July 5 cut-off date.
The Union Budget had made it mandatory for listed companies to pay an additional tax at 20 per cent on share buybacks. The move, aimed at discouraging the practice of avoiding the dividend distribution tax, came into effect on July 5, 2019.
The impact of the Budget announcement was that a listed company, whose buyback was still open, would be taxed at 20 per cent plus surcharge and cess on the amount of consideration paid less than the issue price of such shares. The announcement immediately traiggered withdrawal of buyback plans by companies. Textile manufacturer KPR Mill became one of the first companies to withdraw its Rs 263.31 crore buyback proposal.