Tips to save IPO listing gains tax!
In the years 2023 and 2024, many IPOs brought huge earnings for the investors. But tax also has to be paid on this! What is the tax rule on booking listing gains from IPO? How can tax liability on listing gains be reduced? How will the tax be calculated on selling IPO shares?
Digital payments unicorn Paytm is helping its employees to become shareholders in the company before coming out with its initial public offering (IPO) later this year. Many senior-level executives of the company are now converting their employee stock options (ESOP) into shares ahead of the IPO.
The ESOP share conversion could be collectively worth over Rs 600 crore based on the latest valuation of the company, as per a report in The Economic Times. Currently, Paytm is valued at $16 billion (Rs 12 lakh crore).
Millionaires in the making
Paytm is collaborating with lenders to make loans to the tune of Rs 100 crore available to its senior executives, as per the media report. Over 300 employees are expected to be covered under this initiative. This financing is expected to provide relief to the executives in matters of tax payout in the conversion process, which will be levied on the difference between the share price at current levels and the price at which ESOPs were given.
Paytm has been issuing ESOPs since 2009 and right now its shares are worth Rs 18,000 apiece. A member of Paytm who received ESOP grants at Rs 1,000/share will have to shell out tax in accordance with their salary bracket on the difference of Rs 17,000.
These shares are exempted from lock-in periods of any sort. Paytm has the possibility of raising close to Rs 2,000 crore in a pre-IPO round and the people who invest in this round will have a lock-in period of a year, i.e., they won’t be able to sell their shares for a year from the day the company goes public. Staff shares won’t be subject to this.
Final call in September EGM
These initiatives by Paytm follow food delivery giant Zomato, which turned 18 senior-level executives into millionaires after its blockbuster debut in the stock market.
Earlier this month Paytm had sought the approval of its shareholders to double its ESOP ahead of its listing. The proposal is expected to be discussed in the company’s Extraordinary General Meeting (EGM) which is slated to be held on September 2.