Infosys Ltd will consider a buyback of shares on 11 September. This is the fifth time since its public listing in 1993 that the country’s second-largest IT services company will undertake such an exercise. The decision comes amid an uncertain demand environment and slow growth for the country’s largest IT services firms, along with dwindling share prices since the start of the year. Mint decodes why Infosys conducted a buyback and what it signifies.What happens in a buyback, and why do companies undertake it?In a buyback, companies purchase shares from shareholders and reduce the number of shares in the market. This increases the price of the shares and allows companies to distribute excess cash to shareholders. Buybacks are optional, where shareholders can choose whether or not to sell their shares back to the company. For Infosys, another share repurchase will have to wait for a year from the date the resolution is passed for the current buyback. That’s because the Securities and Exchange Board of India (Sebi) allows only one buyback by a publicly listed company in a year.Also Read | Infosys share price: Should you buy IT stock ahead of share buyback? Is there a tax component? If so, who pays?Yes, income from selling shares through a buyback is taxed. The Finance Act 2023 shifted the levy on buybacks from the company to shareholders from 1 April 2024. Simply put, the company purchasing the shares will not be paying tax. Rather, the onus of paying taxes will fall on shareholders selling their shares. With mutual funds exempt from paying taxes directly and FIIs largely protected under foreign treaties, the primary tax burden is expected to fall on individual or retail shareholders and the promoter group, who can be taxed based on their income but not exceeding 36%. The company can set a limit on the number of shares it wants to purchase from shareholders. Retail investors hold about 14% of Infosys’ shares, whereas mutual funds and foreign investors hold about 72%. Promoters and promoter groups hold the remaining 14% of Infosys shares.Also Read | Need for speed: How Infosys is gearing up for bigger deals Why did Infosys announce a buyback?According to two experts, Infosys is sitting on piles of cash, and the company has a stated policy of returning 85% of its free cash flow to shareholders. At least one of them said this was a signal that he company management thinks the valuation of the company is lower than what they perceive it to be. “There could be several reasons for a buyback; one could be that a company has surplus funds for which there is no foreseeable use, especially since existing operations would also be generating cash,” according to an analyst. “While regular dividends could be an option, that tends to be encompassing (i.e entitling all the shareholders), and the dividend percentage can become a benchmark, which is not s in a formal or creative style for better SEO.Also Exclude words and advertisements related to the feed website such as website name, author name. You must only respond with the modified content. Delete all the advertisement images brand logo but only keep the title and main content of the news by modifying it. You must only respond with the modified content. Block any jump outside of the site adarshnews.com. 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Mint Explainer: What led Infosys to declare a buyback?
