Capital gains move may lift IT buybacks

India's IT services companies might engage in more share buybacks, experts said, following the budget announcement that gains from such transactions will be treated as capital gains from the next fiscal year for all investors.

- Srushti Vaidya, Apoorva Ajith & Jas Bardia

While these capital gains of retail shareholders will be taxed at 12.5% for long-term gains, and 20% for short-term, promoter shareholders will have to pay higher, yet be lower than what they are now paying as tax outgo.

The budget differentiates promoters into corporate promoters and non-corporate promoters. The buyback for corporate promoters amounts to an effective 22%, while it is 30% for non-corporate promoters. Corporate promoters are companies, and non-corporate promoters can be referred to as individuals and trusts.

An example of a corporate promoter would be Vama Sundari Investments (Delhi) Pvt. Ltd, which holds more than 44% of HCL Technologies, India’s third-largest IT services company. On the other hand, Nandan Nilekani, who holds 1.1% of Infosys’s shares, is a non-corporate promoter.