Short-term vs long-term capital gains, the current rates, a worked example and when IPO flipping becomes business income.
Profits from selling IPO shares are taxable. For most investors they are capital gains, and the rate depends on how long you held the shares. The rates below apply to listed equity shares sold on a stock exchange (with securities transaction tax paid) from 23 July 2024 onwards.
Tax rates on IPO gains
| Holding period | Type | Tax rate |
|---|---|---|
| 12 months or less (including selling on listing day) | Short-term capital gain (STCG) | 20% plus 4% cess |
| More than 12 months | Long-term capital gain (LTCG) | 12.5% on gains above ₹1.25 lakh a year, plus 4% cess |
Surcharge applies at higher income levels. The holding period starts on the date the shares are allotted, not the day you applied.
Worked example: selling on listing day
You are allotted one lot of 100 shares at ₹200 and sell all of them on listing day at ₹260.
- Sale value: 100 × ₹260 = ₹26,000
- Cost: 100 × ₹200 = ₹20,000
- Short-term capital gain: ₹6,000 (brokerage and charges can be deducted as transfer expenses)
- Tax at 20%: ₹1,200, plus 4% cess (₹48) = ₹1,248
Work out your own numbers with the capital gains tax calculator or the IPO profit calculator.
If the IPO lists at a loss
A short-term capital loss can be set off against short-term and long-term capital gains in the same year. Any unused loss can be carried forward for up to eight years, provided you file your income tax return by the due date.
When IPO gains become business income
If you apply for IPOs and flip them frequently as a regular activity, the income tax department may treat the profits as business income, taxed at your slab rate. The frequency of trades, the volume and your intention matter. If you are unsure, speak to a tax professional.
Reporting IPO gains in your return
- Individuals with capital gains and no business income usually file ITR-2; those reporting business income file ITR-3.
- Your broker's capital gains statement lists each sale with its purchase and sale values.
- If your total tax for the year crosses ₹10,000, pay advance tax on capital gains in the instalment after the gain arises to avoid interest.
This guide explains general rules and is not tax advice. Tax laws change with each Budget; check the latest rules or ask a chartered accountant before filing.