Don’t Back These Buys

Over the past few months, buyback of shares by companies with surplus funds was back in fashion. Recently, a few firms resorted to it. At the time of writing, another six, including TCS, NTPC and NMDC, were in the various stages of the process. A single change in the last Budget made them fairly attractive, both for the companies and investors, compared to payment of high dividends. Apart from bonus issues, buybacks and dividends are ways in which firms reward their shareholders. What Budget 2020 did was to tax dividends in the hands of the investors, rather than the earlier practice of putting the burden on companies. Suddenly, individuals in the highest tax bracket had to pay 35.88 per cent (including surcharges) as taxes on the dividends. This discouraged firms from declaring higher dividends as the shareholders felt that they received less than what they were due. It was perception...