What is an IPO?
An initial public offering (IPO) refers to the process of offering shares of a private corporation to the public in a new stock issuance. IPOs allow a company to raise capital from public investors. The transition from a private to a public company can be an important time for private investors to fully realize gains from their investment as it typically includes share premiums for current private investors. Meanwhile, it also allows public investors to participate in the offering. We will be taking a close look at tax that an IPO would attract.
Why does a Company go Public?
- To raise capital for growth and expansion:
- Every company needs money to increase its operations, create new products or pay off existing debts. Going public is a great way to gain this much-needed capital for a company
- Allowing owners and early investors to sell their stake to make money:
- It is also seen as an exit strategy for initial investors and venture capitalists. A company becomes liquid through the sale of stocks in an IPO. Venture capitalists sell their stock in the company at this time to reap returns and exit from the company
- Greater public awareness:
- IPOs are ‘star-marked’ in the stock market calendar. There is a lot of buzz and publicity around these events. This is a great way for a company to publicize its products and services to a new set of customers in the market
Process of Applying for an IPO?
- The Securities and Exchange Board (SEBI) that regulates the process of an IPO and companies hoping to issue shares through an IPO have to first register with SEBI
- The company must submit necessary documents with SEBI which is analyzed and approved by the same governing body
- While SEBI evaluates the application, the company should prepare its prospectus
- On receiving the approval from SEBI, the company has to determine the share price of the shares to be issued and disclose the number of shares it plans to issue
- The company must decide between the two types of IPO issues
- Fixed Price IPO is one where the company decides in advance the price of the shares
- Book Building IPO is where the company provides a range of prices and there is a bid for shares within that price range
- The shares are made public once the company decides the type of IPO they go ahead with. The interested investors submit their applications and once the company receives the subscriptions from the public, it allots the shares
- Finally, the company is listed on the stock market and post the issuance in the primary market, it gets listed in the secondary market. These are then open for trading on a daily business
Tax on IPO
If you are allotted shares via an IPO and you sell these shares on or before 12 months of holding, the gain (difference between the sale price and issue price) will be liable to be charged under the head ‘short term capital gain‘. The rate of tax on such gain is a special rate of 15%. The tax will be payable if your total income from all the sources (including capital gain) computed under the provisions of the income tax exceeds INR 2,50,000 (higher slab limits in the case of senior citizens).
If the allotted shares are sold after being held for more than 12 months, the gain will be charged as Long Term Capital Gains. Section 112A with a 10% tax on LTCG in excess of INR 1 lakh will be applicable in the case of a long term capital asset on which STT is paid. The new Section 112A is applicable from FY 2018-19 (AY 2019-20).
List of IPO for the Year 2021
|Issuer Company||Exchange||Open||Close||Lot Size||Issue Price (Rs)||Issue Size (Rs Cr)|
|Tatva Chintan Pharma Chem Ltd IPO||BSE, NSE||Jul 16, 2021||Jul 20, 2021||13||1073 to 1083||500|
|Zomato Limited IPO||BSE, NSE||Jul 14, 2021||Jul 16, 2021||195||72 to 76||9375|
|Clean Science and Technology Ltd IPO||BSE, NSE||Jul 07, 2021||Jul 09, 2021||16||880 to 900||1546.62|
|G R Infraprojects Limited IPO||BSE, NSE||Jul 07, 2021||Jul 09, 2021||17||828 to 837||963.28|
|India Pesticides Limited IPO||BSE, NSE||Jun 23, 2021||Jun 25, 2021||50||296||800|
|Krishna Institute of Medical Sciences Limited IPO||BSE, NSE||Jun 16, 2021||Jun 18, 2021||18||825||2143.74|
|Dodla Dairy Limited IPO||BSE, NSE||Jun 16, 2021||Jun 18, 2021||35||428||520.18|
|Sona BLW Precision Forgings Limited IPO||BSE, NSE||Jun 14, 2021||Jun 16, 2021||51||291||5550|
|Shyam Metalics and Energy Limited IPO||BSE, NSE||Jun 14, 2021||Jun 16, 2021||45||306||909|
|Ruchi Soya Industries Ltd FPO||BSE, NSE||0.04|
|POWERGRID Infrastructure Investment Trust InvIT||BSE, NSE||Apr 29, 2021||May 03, 2021||1100||100||7734.99|
|Macrotech Developers Limited IPO||BSE, NSE||Apr 07, 2021||Apr 09, 2021||30||486||2500|
|Barbeque Nation Hospitality Limited IPO||BSE, NSE||Mar 24, 2021||Mar 26, 2021||30||500||452.87|
|Suryoday Small Finance Bank Ltd IPO||BSE, NSE||Mar 17, 2021||Mar 19, 2021||49||305||582.34|
|Nazara Technologies Limited IPO||BSE, NSE||Mar 17, 2021||Mar 19, 2021||13||1101||582.91|
|Kalyan Jewellers India Limited IPO||BSE, NSE||Mar 16, 2021||Mar 18, 2021||172||87||1175|
|Laxmi Organic Industries Limited IPO||BSE, NSE||Mar 15, 2021||Mar 17, 2021||115||130||600|
|Craftsman Automation Limited IPO||BSE, NSE||Mar 15, 2021||Mar 17, 2021||10||1490||823.7|
|Anupam Rasayan India Limited IPO||BSE, NSE||Mar 12, 2021||Mar 16, 2021||27||555||760|
|Easy Trip Planners Limited IPO||BSE, NSE||Mar 08, 2021||Mar 10, 2021||80||187||510|
|MTAR Technologies Limited IPO||BSE, NSE||Mar 03, 2021||Mar 05, 2021||26||575||596.41|
|Heranba Industries Limited IPO||BSE, NSE||Feb 23, 2021||Feb 25, 2021||23||627||625.24|
|RailTel Corporation of India Limited IPO||BSE, NSE||Feb 16, 2021||Feb 18, 2021||155||94||819.24|
|Nureca Limited IPO||BSE, NSE||Feb 15, 2021||Feb 17, 2021||35||400||100|
|Brookfield India Real Estate Trust REIT||BSE, NSE||Feb 03, 2021||Feb 05, 2021||200||275||3800|
|Stove Kraft Limited IPO||BSE, NSE||Jan 25, 2021||Jan 28, 2021||38||385||412.63|
|Home First Finance Company India Ltd. IPO||BSE, NSE||Jan 21, 2021||Jan 25, 2021||28||518||1153.72|
|Indigo Paints Limited IPO||BSE, NSE||Jan 20, 2021||Jan 22, 2021||10||1490||1176|
|Indian Railway Finance Corporation Limited IPO||BSE, NSE||Jan 18, 2021||Jan 20, 2021||575||26||4633.38|
|Glenmark Life Sciences Limited IPO||BSE, NSE|
The Initial Public Offering does not trigger any taxation. Taxes only apply when you sell the shares. Any gains over your cost-basis are taxed as capital gains.
The IPO is a bit of a hurry-up-and-wait, as employees usually can’t sell their stock for up to 180 days. This is called a lock-up period, and is meant to prevent employees from all dumping their stock and depressing the stock price.