Tax on IPO listing gains in India (2026): STCG, LTCG and what to report

A sale of IPO shares on listing day, or any sale within 12 months of allotment, is a short-term capital gain on listed equity. When securities transaction tax is paid on that sale, Section 196 taxes it at 20%. That section was Section 111A. Hold the shares for more than 12 months and the gain can be long-term, at 12.5% on the amount above ₹1,25,000 in the year, under Section 198. That section was Section 112A.

This is the fifth note in the IPO series. The form is the UPI and ASBA guide. The draw is the allotment guide. One application is the status guide. The draft is the offer-document guide. Live issues are on the IPO calendar. What a grey market premium is will be the next note in this series. This page does not print one.

What tax applies if you sell on listing day?

You pay short-term capital gains tax. The shares have been yours for a few days, which is not more than 12 months. Section 2(101), which was section 2(42A), treats a listed security as short-term for that long. Section 196 then charges 20% if the sale is chargeable to securities transaction tax. Cess of 4% sits on the tax. Surcharge on this special rate stops at 15%.

A return for FY 2025-26, filed in 2026, still uses the Income-tax Act, 1961, so the sections on that form are Section 111A and Section 112A. Gains from 1 April 2026 (FY 2026-27) use Section 196 and Section 198. The rates have applied since 23 July 2024. The section number guide is the crosswalk, and the capital gains guide covers other assets.

A sale on the 12-month anniversary is still short-term. The day after that anniversary can be long-term. The ₹1,25,000 line is for the whole year, not for each sale. A short-term equity gain has no slice of that exemption.

When does an IPO share become long-term?

It becomes long-term once you have held it for more than 12 months. You acquire the shares when they are allotted. That date is before listing. Listing is the day the exchange lets you sell. It is not a second purchase.

The department counts the period of holding from the date of purchase or acquisition until the day before the transfer. If a broker’s contract is followed by delivery, that page treats the broker’s note as the transfer date. Demat lots use first-in-first-out: the lot that entered the account first is the lot treated as sold.

The Act names “the date of allotment” for a bonus share issued without payment, and for a share an employer allots free or at a concession. Those lines are not a separate IPO clause. A plain IPO starts when the shares become yours, at allotment. A listing-day sale stays short-term.

Section 198 also needs securities transaction tax on the acquisition of an equity share, and on the transfer, subject to exceptions the Central Government can notify. This page does not treat an IPO allotment as one of those exceptions. A listing-day sale does not need that acquisition test: Section 196 looks at securities transaction tax on the sale. The 13-month illustration below assumes the sale qualifies for Section 198.

What is the cost, and what can you deduct?

The cost of acquisition is the value at which you got the shares, plus expenses of acquiring them. On a normal IPO that is the issue price you paid. Brokerage on the transfer reduces the gain.

Securities transaction tax does not reduce the gain. The department’s page allows no deduction for any sum paid as that tax. Leave it out of the expense box on the capital gains calculator. This page does not state an STT percentage.

A lower price in an employee or shareholder quota is the cost when that discount was not taxed in your salary. If the discount was already taxed as a perquisite, the cost is the value that salary counted. This page does not recompute a salary perquisite. Read the Form 16 line before you type a discounted issue price as the whole cost.

What do the two illustrations come to?

Both illustrations use one lot from the IPO pages: 100 shares at an issue price of ₹100, so the cost is ₹10,000. The sample sale is ₹140 a share. Brokerage is ₹50. Other taxable income is ₹15,00,000 in the new regime, so the nil band is already used and the extra tax is the share sale alone.

The same money, allotted on 2 April 2025 and sold on 4 June 2026, was held for more than 12 months. The gain is still ₹3,950. It is long-term, more than 12 months under Section 198. The yearly exemption used is ₹3,950, which covers the whole gain, so tax before cess is ₹0 and the extra tax is ₹0. A larger long-term gain in the same year would pay 12.5% only on the slice above ₹1,25,000.

Type your own sale price and your own brokerage. If you already used part of the ₹1,25,000 on another long-term equity sale this year, reduce the exemption you have left. The calculator takes one sale.

What if the shares list below the issue price?

Sell within 12 months and the shortfall is a short-term capital loss. The same lot, sold at ₹80 a share with the same ₹50 brokerage, produces a loss of ₹2,050. Tax on that loss is ₹0. The calculator does not set the loss off against the ₹15,00,000 of other income. You do that in the return.

In the same year, section 108 (this was section 70) lets a short-term capital loss be set off against any other capital gain. A long-term capital loss can be set off only against a long-term gain. Section 109(2) (this was section 71) says a capital-gains loss shall not be set off against any other head, so it does not reduce salary.

What is left is carried forward under section 111 (this was section 74) for up to eight tax years. A brought-forward short-term loss can meet any capital gain. A brought-forward long-term loss meets only a long-term gain. Section 121 allows that carry-forward only if the loss was determined in a return filed under section 263(1). A FY 2025-26 loss still uses section 139: file by the due date, or the later years cannot use it. The ITR guide has the dates.

Can the rebate or the basic exemption cut this tax?

A resident can use an unused nil band against these gains before the special rate. Section 196(2) says so for the short-term rate, and section 198(3) for the long-term rate. In the new regime that band is ₹4,00,000. The illustrations add ₹15,00,000 of other income, so the band is already used. With no other income, the first slice is taxed less. Type other income after the deductions you actually get.

The new-regime rebate does not wipe this tax. Section 156(2) (this was the higher Section 87A rebate) can cancel tax on income under Section 202 up to ₹12,00,000, with a cap of ₹60,000 and marginal relief just above that line. Section 156(3) says that rebate shall not exceed the tax payable at the Section 202 rates. The department’s page says the rebate is not taken from the long-term gain under this provision, and that from AY 2026-27 the total rebate shall not exceed the new-regime tax. A salary inside the rebate can still leave tax on a listing-day gain.

Section 156(1) is the older rebate. A resident individual whose total income does not exceed ₹5,00,000 can deduct the tax or ₹12,500, whichever is less. The department’s short-term example says a resident can claim Section 87A on the tax computed after the basic-exemption adjustment. That matches Section 156(1) when total income stays inside ₹5,00,000. It is a different rule from the cap in Section 156(3).

Could frequent selling be business income?

It can. The test is CBDT Circular No. 6 of 2016, dated 29 February 2016, not a count of IPOs flipped. If you treat listed shares as stock-in-trade, the surplus is business income whatever the holding period. If you held them for more than 12 months and you offer the surplus as capital gains, the assessing officer shall not dispute that choice, and the same stand applies in later years. Other cases follow Instruction No. 1827 of 31 August 1989 and Circular No. 4 of 2007, dated 15 June 2007. The circular does not apply to a sham transaction.

A listing-day sale is inside 12 months, so that “shall not dispute” line does not cover it. One allotment sold on listing day is still, for most people, a capital gain. Books kept as a trade make it business income, and then the form is ITR-3. This page is the capital-gains case.

Is tax deducted, and when is advance tax due?

The department’s sale-of-shares page tells you to compute the tax and pay it. It does not describe tax deducted at source on a resident’s sale on the exchange. The contract note shows securities transaction tax. That is a transaction tax, not income tax taken out of the gain. This page is about a resident individual. A non-resident’s sale is outside it.

Advance tax applies when the tax payable for the year is ₹10,000 or more, under Section 404 (this was Section 208). A gain that arises after an instalment date gets a later catch-up. Section 425(4) (this was Section 234C) skips interest on an earlier shortfall that came from underestimating capital gains, if you pay the tax on that gain in a remaining instalment or by 31 March. A gain you could already see in May does not get that quiet treatment. The dates and the percentages are in the advance-tax guide. For FY 2025-26 the interest sections are still 234B and 234C.

Which return do you file?

For FY 2025-26 (AY 2026-27), use ITR-2 when you have a capital gain and you do not have business income. Use ITR-3 when the shares are business income, including the stock-in-trade case in the 2016 circular. ITR-1 and ITR-4 allow long-term equity gains under section 112A only up to ₹1,25,000. A short-term listing-day gain is not that allowance. The ITR guide sets out who each form is for.

The gain goes in Schedule CG. A long-term equity sale also goes in the Section 112A schedule: scrip, dates, cost and sale. Use the broker’s capital-gains statement and the Annual Information Statement, and match them. This page does not name a broker. If a statement uses the listing price as your cost, replace it with the price you paid on allotment.

What about a grey market premium?