Tax on IPO – Initial Public Offering

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


Is an IPO a taxable event?

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.

How long after IPO can you sell?

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.

Got Questions? Ask Away!

  1. Hi @FalconZex

    1. Yes you are right the tax payable shall be 10,000 INR
    2. Rebate is applicable on total tax liability Section 87A does not exclude any income specifically.
    3. In such a case no rebate shall be available. The tax rate shall be as under:
    • On business income of 2 lakhs INR: 5%

    • On STCG of 2 lakhs INR: 15%

    You can also refer to our Income Tax Calculator