Types of Capital Gains Tax on IPO Shares
When you sell shares from an IPO, the gains are taxed as capital gains. The tax rate depends on how long you held the shares.
Short-Term Capital Gains (STCG)
- Holding period: Less than 12 months
- Tax rate: 20% (as of Budget 2024)
- When it applies: Selling on listing day, or anytime within 1 year of allotment
Example: You sell allotted shares on listing day with ₹50,000 profit → Tax = ₹50,000 × 20% = ₹10,000
Long-Term Capital Gains (LTCG)
- Holding period: More than 12 months
- Tax rate: 12.5% on gains above ₹1.25 lakh per year
- Indexation: Not available for equity/equity mutual funds
Example: You hold shares for 18 months and earn ₹2,00,000 profit → Taxable gain = ₹2,00,000 − ₹1,25,000 = ₹75,000 → Tax = ₹75,000 × 12.5% = ₹9,375
Securities Transaction Tax (STT)
Every time you buy or sell listed shares, you also pay STT (Securities Transaction Tax):
- Buy: 0.1% of transaction value
- Sell (delivery): 0.1% of transaction value
IPO Application Itself: No Tax
Simply applying for an IPO and getting allotment doesn't trigger tax. Tax is only triggered when you sell the shares.
Tax Filing
Capital gains from IPOs must be reported in ITR-2 or ITR-3 (not ITR-1). Your broker provides a Capital Gains Statement that makes this calculation straightforward.
Key Takeaway
Selling on listing day = 20% STCG on profits. Holding for 12+ months = 12.5% LTCG above ₹1.25 lakh. For large profits, the tax saving from holding longer can be meaningful.
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