DNA Money Edit: Centre halts the share buyback march

This year was turning out to be the year of buybacks with 70 companies buying back shares in the first half and a mega issue by Wipro still open. However, the Union Budget's move to impose a 20% tax on such buybacks by companies has put a spanner for such issuances.

Of late, buybacks had emerged as a major route for Indian companies to distribute free cash flow to shareholders as the other avenue, dividend distribution tax attracts 20.56% tax. Corporates, especially IT firms, were using a mix of dividend and share buybacks for the past three years. Of the total cash returned to shareholders by TCS in the past two years, about 60% was done through buyback and 40% through dividends.

TCS has bought back shares to the tune of Rs 16,000 crore while Wipro's buyback programme in April this year is its third in four years. Infosys, which had returned around Rs 13,000 crore to shareholders, announced a Rs 8,260 crore buyback programme in January this year. Wipro has made nearly 90% of its payout to shareholders in the form of buybacks in the past two years.

IT companies started using buybacks after the consistent increase in DDT, the imposition of tax on dividends at the rate of 10% in the hands of individuals, partnerships, etc, for dividend in excess of Rs 10 lakh. The government's move has put a question mark on the fate of existing buybacks and effectively plugged the tax saving route.