IPO Taxation in India: STCG, LTCG, STT & How to File in ITR

If you sell IPO shares within 12 months of getting them, you pay 20% tax on the profit. If you hold for more than 12 months, you pay 12.5%, but only on gains above ₹1.25 lakh per financial year. These rates came into effect on 23 July 2024 after changes made in the Union Budget 2024 and apply to all IPO shares sold on or after that date.

How Are IPO Gains Taxed in India? (Post Budget 2024)

When you sell shares you got through an IPO and make a profit, that profit is called a capital gain. The tax you pay on it depends on one thing: how long you held the shares before selling.

The Union Budget presented on 23 July 2024 changed three things that matter directly to IPO investors:

• Short-Term Capital Gains (STCG) tax on equity shares went up from 15% to 20%
• Long-Term Capital Gains (LTCG) tax rate increased from 10% to 12.5%
• The annual LTCG exemption was raised from ₹1 lakh to ₹1.25 lakh

Here is a quick reference for the current rates:

Your holding period starts from your allotment date as in the date IPO shares are credited to your demat account. It does not start from your application date or from the listing date.

Short-Term Capital Gains (STCG) on IPO Shares

Definition: IPO Shares Held for Less Than 12 Months

If you sell your IPO shares within 12 months of the allotment date, the profit is called Short-Term Capital Gain, or STCG. This is the most common situation for retail IPO investors, most people sell on listing day or within a few months.

Your allotment date is the date shares are credited to your demat account. Under SEBI’s T+3 listing timeline, allotment typically happens two to three days before the stock lists on the exchange. So if you sell on listing day itself, you will almost always be in STCG territory.

Example to understand what counts as short-term:

• Allotment date: 1 June 2025
• You sell: 20 October 2025 (approximately 4.5 months later)
• Result: STCG — held less than 12 months

STCG Tax Rate: 20% (From 23 July 2024)

All STCG on listed equity shares, including IPO shares, is taxed at a flat 20%. This applies regardless of your income tax slab. Whether you are in the 5%, 20%, or 30% bracket, the STCG rate on equity is always 20%.

There is one exception: if your total income for the year (including the STCG) falls below the basic exemption limit of ₹2.5 lakh, you can adjust the shortfall against your STCG before applying the 20% rate.

On top of the 20% tax, a 4% health and education cess also applies, making the effective rate 20.8%.

Before 23 July 2024, the STCG rate on equity was 15%. The increase to 20% was made effective from that date.

Example: ₹10,000 Listing Gain Taxed at STCG

Issue price: ₹200 per share | Shares received in allotment: 100

Listing day sale price: ₹300 per share

Gain = (₹300 – ₹200) × 100 = ₹10,000

• STCG tax at 20% = ₹2,000
• Health and education cess at 4% = ₹80
• Total tax payable = ₹2,080

Long-Term Capital Gains (LTCG) on IPO Shares

Definition: Shares Held for More Than 12 Months

If you hold your IPO shares for more than 12 months from the allotment date before selling, the profit is called Long-Term Capital Gain, or LTCG. This applies if you held through the listing and continued holding for growth, or decided not to sell immediately and waited over a year.

One day makes a difference here. If you sell exactly on the 12-month mark, it still counts as STCG. You need to hold for more than 12 months to qualify for LTCG treatment.

Example:

• Allotment date: 10 January 2024
• You sell: 15 January 2025 (12 months and 5 days later)
• Result: LTCG — held more than 12 months

LTCG Tax Rate: 12.5% Above ₹1.25 Lakh Exemption

LTCG on listed equity shares is taxed at 12.5%. But before you apply that rate, you get a tax-free allowance: the first ₹1.25 lakh of LTCG in a financial year is completely exempt from tax.

A few important points about this exemption:

• The ₹1.25 lakh limit applies across all your LTCG in that year, not per IPO or per trade
• If you made LTCG from other stocks or equity mutual funds in the same year, those gains also count toward this limit
• Unused exemption does not carry forward, if you only made ₹50,000 in LTCG this year, you cannot use the remaining ₹75,000 exemption next year
• 4% cess applies on top, making the effective rate on taxable LTCG 13%

Before 23 July 2024, the LTCG rate on equity was 10% and the annual exemption was ₹1 lakh. The revised rates apply to all sales made on or after 23 July 2024.

Example: ₹2 Lakh LTCG Calculation

Allotment date: 10 January 2024 | Issue price: ₹200 per share | Shares received: 1,000

Sale date: 15 February 2025 | Sale price: ₹400 per share

(Held for approximately 13 months — qualifies as long-term)

• Sale value: ₹4,00,000
• Cost of acquisition: ₹2,00,000
• Total LTCG: ₹2,00,000

Tax calculation:

• Exempt (first ₹1.25 lakh): ₹1,25,000
• Taxable LTCG: ₹75,000
• Tax at 12.5%: ₹9,375
• Health and education cess at 4%: ₹375
• Total tax payable: ₹9,750

Securities Transaction Tax (STT) on IPO Shares

STT, or Securities Transaction Tax, is a small tax collected automatically by your broker every time you buy or sell equity shares on NSE or BSE. You do not calculate or pay it separately — it is deducted at the time of the transaction and appears on your contract note.

For delivery-based equity trades — which includes selling IPO shares you received on allotment — STT is charged at 0.1% of the transaction value on the sell side.

IPO allotment itself does not attract STT. STT is only charged when you sell shares on the stock exchange.

Why does STT matter for IPO investors? The concessional capital gains rates of 20% STCG and 12.5% LTCG under Sections 111A and 112A of the Income Tax Act apply only to transactions where STT has been paid. Since all exchange trades attract STT automatically, your IPO share sales will always qualify for these lower rates.

Tax on Listing Day Gains: The Most Common Scenario

Most retail IPO investors sell on listing day — the first day the stock starts trading. Since allotment happens about a week to two weeks before listing, this is almost always a short-term gain, taxed at 20%.

Here is how to work out your listing day gain:

• Cost of acquisition = IPO issue price per share (the price you applied at)
• Sale price = the price at which you actually sold on listing day
• Gain = (Sale price – Issue price) × Number of shares
• Tax = Gain × 20% (STCG) + 4% cess

What if the stock lists below the issue price? If you sell at a listing price lower than your issue price, that is a Short-Term Capital Loss. You can use that loss to reduce your tax on other capital gains in the same financial year.

Example: Selling on listing day at a gain:

• Issue price: ₹500 per share | Shares received: 200
• Listing day sale price: ₹750 per share
• Gain = (₹750 – ₹500) × 200 = ₹50,000
• STCG tax at 20% = ₹10,000
• Cess at 4% = ₹400
• Total tax payable = ₹10,400

How to Report IPO Capital Gains in ITR (FY 2025-26)

Capital gains from IPO shares are not automatically reported to the income tax department. You need to disclose them in your ITR. Not doing this can lead to a tax notice later, since your broker reports transaction data to the tax department separately.

Which ITR Form to Use: ITR-2 or ITR-3

The form you need depends on your income sources:

If your income is only from salary and capital gains from stock sales (including IPO shares), ITR-2 is what you need. ITR-3 is for anyone who also has income from a business or profession.

Where to Fill Capital Gains in ITR

In ITR-2 or ITR-3, capital gains from IPO shares go into Schedule CG (Capital Gains).

For STCG (shares held 12 months or less):

• Go to Schedule CG → Short-Term Capital Gains
• Enter details under Section 111A, this is the section for STCG on equity shares where STT has been paid

For LTCG (shares held more than 12 months):

• Go to Schedule CG → Long-Term Capital Gains
• Enter details under Section 112A, this covers LTCG on listed equity shares where STT has been paid

For each transaction, you will need:

• ISIN of the stock (a 12-character identifier, available on the NSE or BSE website)
• Name of the company
• Number of shares sold
• Date of acquisition (your allotment date)
• Date of sale
• Sale price per share and cost of acquisition per share (the IPO issue price)

Your broker’s capital gains statement has all of this information. You can download it directly from your INDmoney account.

Can I Set Off IPO Losses Against Other Gains?

Yes. If you sell IPO shares at a loss. For example, the stock listed below the issue price and you sold, that loss can reduce the tax you owe on other capital gains. The set-off rules depend on whether the loss is short-term or long-term.

Short-Term Capital Loss (STCL): A loss from selling IPO shares within 12 months of allotment can be used to reduce both Short-Term Capital Gains and Long-Term Capital Gains from other investments. It is the more flexible of the two.

Long-Term Capital Loss (LTCL): A loss from holding IPO shares for more than 12 months before selling can only be set off against Long-Term Capital Gains. It cannot be used against STCG.

What if you cannot use the full loss in the same year? You can carry it forward for up to 8 assessment years and use it to reduce gains in a future year. There is one condition: you must file your ITR before the due date for the year in which the loss occurred. If you miss the deadline, you lose the right to carry that loss forward.