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Tax Treatment Of Listing Gains From An IPO

Updated on: 25 Apr, 2024 12:54 PM

As many IPOs are listing at a good premium, many investors look at booking profits on listing as this proves to be a good way to earn sizeable returns in a short period. Did you know there are tax implications that you should take into consideration?

Check out what’s the right way listing gains are taxed with the example of Nykaa.

Suppose you applied for 20 shares of Nykaa at Rs 1125 each, and the same got listed at Rs 2018. If you sold the shares on listing after allotment, your gain is Rs 17860. This is considered capital gain as per Income Tax Law.

Short-term or Long Term Capital Gain?

Gains made on stocks (equities) are categorized as long-term or short-term capital gains, which form the basis for their taxation.

Holding period Type of gain Rate of Tax
12 months or less Short term gain 15% + Cess (If STT is paid)
12 months or more Long-term capital gain Exempted upto Rs.1 lakh per annum
(inclusive of all equity-oriented mutual funds)
10% without indexation for more than Rs.1 lakh.

In our case, as the shares were sold on the listing, your gain of Rs 17860 is considered short-term capital gain and taxed at 15%(cess+ surcharge(if any)

So you will be liable to pay 15% * 17860 = Rs 2679 as short-term capital gains tax [excluding Cess and Surcharge]. Please note that the benefit of the basic exemption limit will be applicable in case the taxpayer does not have any other income.

Setting Off Of Short-Term Capital Gain Against Capital Loss

If you have any short-term capital loss, you can set it off against short-term/long-term capital gain. But the same cannot be done for long-term capital loss. That will have to be set off only against long-term capital gain.

If you are unable to set off the loss this year, you may carry it forward for a period of 8 years provided your Income-tax return is filed this year.

If all these taxes and the term periods end up confusing you, leave all your worries behind by opting for an assisted tax filing service with Tax2win.

What is the Treatment of Loss on IPO Listing?

The disposal of listed equity shares kept for over 12 months results in a long-term capital loss, while those held for up to 12 months incur a Short-term Capital loss. According to income tax regulations regarding the utilization and retention of losses:

  • Short-term Capital loss (STCL) is eligible for offset against both short-term capital gains (STCG) and long-term capital gains (LTCG).
  • Long-term Capital loss (LTCL) can only be offset against long-term capital gains (LTCG).
  • Any remaining loss, whether STCL or LTCL, can be carried forward by the taxpayer for up to 8 years to offset against future Capital Gains exclusively.

How to Report IPO Listing Gains in ITR?

The taxpayer must use either ITR-2 or ITR-3 to report income from capital gains. Income from the sale of IPO shares should be reported in Schedule CG of the Income Tax Return (ITR). In this schedule, the taxpayer needs to provide:

  • The total sales value (full value of consideration).
  • Deductions under Section 48.
  • Purchase value (cost of acquisition).
  • Transfer expenses (expenditure wholly and exclusively related to transfer).
  • Capital gains on shares, whether Short-term Capital gains (STCG) or long-term capital gains (LTCG), are automatically calculated.

Moreover, if there are Long Term Capital Gains from the sale of IPO shares, additional details must be provided under Schedule 112A of the ITR, including:

  • International Securities Identification Number (ISIN).
  • Name of the share or unit.
  • Number of shares sold.
  • Sales price per share or unit.
  • Cost of acquisition.
  • Fair Market Value (FMV) as of January 31, 2018.
  • Expenditure related to the transfer.

Are you confused about how to report IPO listing gains in ITR? Don’t get intimidated by complex tax laws, and consult our tax experts to get tax advice tailored to your needs. Book Tax Consultation Now!

CA Abhishek Soni
CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.