HDFC Asset Management Company made a stellar debut on the bourses by listing at 58 per cent premium over its issue price. Many small retail initial public offering (IPO) investors would have used this opportunity to book profits. The issue price of the HDFC AMC IPO was Rs 1,100 whereas the scrip got listed at Rs 1,739.
If you are one of the small investors who sold the company’s shares at the listing price, you would have made a gain of Rs 639 per share. But before you start celebrating, know how these gains will be taxed.
Taxation on equity gains
According to income tax rules, capital gains on equities are taxed according to their holding period. Capital gains are divided into short-term and long-term.
Any gains made on equity shares sold after holding them for less than a year are called short-term capital gains (STCG). Chetan Chandak, Head of Tax Research, H&R Block India says, “Since the holding period of the shares sold on listing day is less than a year, these gains will be qualified as STCG.”
On the other hand, if you have sold equity shares after holding them for more than a year, then these gains are called long-term capital gains (LTCG).
“If you sold these shares through the recognized stock exchange and paid STT on the sale transaction then these gains will be taxable at 15 percent under section 111A of the income tax Act,” adds Chandak.
Taxation on your HDFC AMC listing gains
Here is how much tax (per scrip) you will have to pay if you sold your HDFC AMC shares on listing day:
Issue Price: Rs 1100
Listing Price: Rs 1739
Gains: Rs 639
Tax: 15% of Rs 639 = Rs 95.85
Cess @ 4 per cent = Rs 3.83
Total tax liability = Rs 100 Approximately
So, let us say you sold 50 HDFC AMC shares on listing day at Rs 1,739 each. You would have made Rs 86,950. Now, of this your tax liability will be approximately Rs 5,000.
Set offs available
There is a silver lining though. Chandak says, “If you have made any short-term losses from transfer of any asset, then you can use the same to lower your tax liability. Current income tax laws allow you to set-off any short-term losses arising from transfer of any capital asset against both STGC and LTCG. Remember, you cannot set-off these STCG against the long-term capital losses.”
Also don’t forget that from this financial year, gains from sale of equity shares and equity mutual funds, if they qualify as LTCG, will be taxed at the rate of 10 per cent without indexation benefit if the gains exceeds Rs 1 lakh in a fiscal.