Why do you purchase look good for companies, but those investors hurt, Deepak Shenoy breaks off

Sharing purchase can stimulate the profit per share and companies look slimmer, but for most Indian investors they are a losing proposition, warns Deepak Shenoy, founder of Capital Mind. “For a taxable person, return is not useful to affect India,” Shenoy wrote in a social media post on Saturday and brought out how the tax rules stack the opportunities against shareholders.

“The full amount of the repurchase is taxed as a dividend. Shares offered in a repayment are supposed to be sold at zero rupees,” said Shenoy. For an investor who has purchased shares from RS 1,000 and sends them on RS 2,000, the payment is taxed against the person’s plate percentage, who can be 35% or more.

In the meantime, the purchase costs of RS 1,000 are treated as a capital loss. “For power gains, long -term taxes are 12.5% ​​and you can only compensate for long -term losses against long -term profits, so it is only an advantage of 15% (after tax on tax) on RS 1,000 = RS 150 saved in taxes,” Shenoy said.

Due to his calculation, a tender in such a repayment leaves a investor with RS 1,450 net taxes. The sale of the same shares in the market on RS 1,700 would yield RS 1,595 after tax on.

Optional, but still unattractive

Return are not mandatory in India. “There is a tender window (which can come months later), and if you don’t tender, you just can’t get your shares back,” Shenoy wrote. For investors who need liquidity, he argued, selling on the market usually delivers a better outcome after taxes.

Why companies still prefer it

Shenoy pointed out that the rules were not always so hard. “Further purchase tax rules have become heavy, as you have seen. In the past, back purchase was not in your name – the companies just paid a flat load of 20%. This was changed to the new system in 2024.”

Yet he said, “Back purchase are great for companies.” In contrast to dividends, which are also fully taxed, the stock of stocks shrink, which makes future profit per share look stronger. “So it’s better for a company to buy back than to give dividends.”

Who wins in this system?

Not everyone loses. “Investors in lower tax plates and some Indian institutions that do not pay taxes, such as insurance companies, pension funds, EPFO ​​and investment funds,” can be won on purchase, Shenoy said.

His advice for retail investors was BOT: “Calculate the real return after tax on your investment before you decide to grind shares in a back purchase. It is usually better to sell so many shares in the market instead, unless you are in a low tax bracket.”

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(Disclaimer: recommendations, suggestions, views and opinions of the experts are their own. These do not represent the views of economic times)