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?
Amid the enormous frenzy over the Zomato IPO – some calling it a gamechanger for startups while others citing its overtly high valuation – Capitalmind’s founder and chief executive Deepak Shenoy says that retail investors may be better off giving IPOs a miss. Speaking to Money9 in a video interview, Shenoy said, “Investors should avoid subscribing to an IPO only for listing-day gains. Instead they should look at the company on a five to 10-year horizon and then decide whether or not to invest.” He added that listing-day gains even for a Zomato allotment at Rs 16,000 per lot will possibly give the investor just a few thousands, versus buying a larger quantify of shares at a better price later and holding on to make bigger gains.
“If you invest Rs 20,000 and make a 50% gain, you end up with Rs 10,000 as profit. Compare this with investing one lakh and making just a 20% profit, your absolute gain is Rs 20,000. That’s double the amount,” Shenoy said.
Wait for price correction?
Shenoy says retail investors should avoid IPOs and wait for the listing day before investing. He goes further to state that observing the newly listed stock for even three months may be wise. “Wait for three months because anchor investors are locked in only for one month. If they decide to exit the investment after the first month, prices are bound to fall. At that moment, you should decide if you want to invest,” he said.
Should you give IPOs a miss?
Shenoy said that some IPO investments have given great returns to investors, but that is also the case with many companies where investors have bought shares well after the listing day. “Avoid putting in all your money in one go. Space it out over a few months,” he said.
Zomato ushering in a change in valuations
Shenoy explained why Zomato IPO has become talk of the town. “Zomato is a day-to-day name for investors who interact with the brand directly, frequently. It is the first unicorn to be listed in India and the first in the food delivery category,” he said comparing it with other IPOs where the direct touchpoint with customer-investors is mostly absent.
IPO notwithstanding, at a fundamental level, Shenoy said that he believed the Zomato team has created new paradigms in operational efficiency and business models that will hold the company well in times to come. “The rider model is very different because the 40,000 -odd riders are not on the company’s payrolls. Their bikes are their own, not Zomato’s. This has given birth to the gig economy. Add to that innovations with cloud kitchens that have made location-location-location a redundant concept in hospitality,” he said.