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 categorised 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 gain||Exempted up to Rs 1 lakh per year
(inclusive of all equity-oriented mutual funds)
10% without indexation for over 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 8years provided your Income-tax return is filed this year.
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