Paytm IPO Listing gain and capital gain tax on selling shares in IPO allotment | Capital gain on IPO
Incorporated in 2000, One 97 Communications Ltd is India’s leading digital ecosystem for consumers as well as merchants. As of March 31, 2021, the company has a 333 million+ client base and 21 million+ registered merchants to whom it offers payment services, financial services, and commerce and cloud services.
In 2009, the company launched the first digital mobile payment platform, “Paytm App” to offer cashless payment services to customers and now, it became India’s largest payment platform and the most valuable payments brand with a total brand value of US$6.3 billion as per Kantar BrandZ India 2020 Report. The app enables customers to do cashless transactions at stores, top-up mobile phones, online money transfers, pay bills, access digital banking services, purchase tickets, play games online, buy insurance, make investments, and more. However, merchants can use the platform for advertising, online payment solutions, offering products to customers, and loyalty solutions.
Company Financials:
| Particulars | For the year/period ended (₹ in million) | ||||
|---|---|---|---|---|---|
| 30-Jun-21 | 30-Jun-20 | 31-Mar-21 | 31-Mar-20 | 31-Mar-19 | |
| Total Assets | 94,590 | 102,777 | 91,513 | 103,031 | 87,668 |
| Total Revenue | 9,480 | 6,494 | 31,868 | 35,407 | 35,797 |
| Profit After Tax | (3,819) | (2,844) | (17,010) | (29,424) | (42,309) |
Objects of the Issue:
The net proceed from the IPO will be utilized towards the following purposes;
- Growing and strengthening Paytm ecosystem, including through acquisition and retention of consumers and merchants and providing them with greater access to technology and financial services – ₹ 4,300 Crores
- Investing in new business initiatives, acquisitions and strategic partnerships – ₹ 2,000 Crores
- General corporate purposes
Paytm IPO Subscription Status
The Paytm IPO is subscribed 1.89 times. The public issue subscribed 1.66 in the retail category, 2.79 in the QIB category, and 0.24 in the NII category.
Application Wise IPO Subscription (Retail): 1.02 times
| Category | Subscription (times) |
|---|---|
| QIB | 2.79 |
| NII | 0.24 |
| RII | 1.66 |
| Total | 1.89 |
The listing date for IPO is 18.11.2021.
The IPO is expected to list at a near to zero premium or even at a discount as it is a very large IPO and company is not having any profits.
Capital gain tax on sale of shares received in IPO allotment:
Now, let’s talk about the taxability of gain earned if the shares are sold on the listing date itself to get listing gain by way of premium on listing and if the same is sold after some time.
There can be two types of gain’s: (i) long term or (ii) short term.
Since the shares are going to be listed on stock exchange hence, if the shareholder sell such shares on the recognised stock exchange, such shares will be considered as long term asset if they are held for more than one year and will be considered as short term if they are held for a period less than 1 year.
The taxability of such shares will be calculated based on section “111A for short term gain” and “112A for long term gain” wherein tax rate of short term gain is 15% of the gain and for long term gain the tax rate is 10% of the gain amount.
Looking at the current scenario we know that many people sell their shares on the listing day itself to earn the listing premium and hence the gain earned by such transaction will be considered as short term capital gain as the assessee held shares for less than one year period and hence he/ she shall be liable to pay tax at the rate of 15% on such gain under section 111A of the Income tax Act.
However if the shareholder holds the share for more than one year from the date of listing as the specialty chemical sector is likely to see boom in next year then he or she shall be liable to pay tax at the rate of 10% on the gain amount under section 112A of the Income tax Act.
Further, for long term capital gain no tax needs to be paid on the initial Rs. 1 lakh gain u/s 112A of the Income tax Act and no benefit of indexation will be available in case of long term gain since the shares are listed and sold on recognized stock exchange.
In case of long term capital gain one can claim exemption u/s 54F by investing the entire sale consideration in a new residential house and if the conditions mentioned under section 54F are fulfilled, other than section 54F there are no other way to save capital gain tax.
Also, the tax rates mentioned above are just base rates and surcharge and cess will also be added accordingly on such tax rates.
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