Since digitization, investors in the stock market have started increasing. At the same time, many people also invest in the primary market today. In such a situation, the question remains whether tax is deducted from the earnings of the IPO. Along with this, how much tax do we have to pay?

But before that, let us know what is IPO and Primary Market and how it works.

What is Initial Public Offering?

IPO is also called Initial Public Offering.

Every new company has to enter the primary market before investing in the secondary market of the stock market.

When a new company enters the stock market, its shares are called IPO i.e. Initial Public Offering. Investors can buy IPO from the primary market.

It can also be said that the company collects capital through IPO. Then these IPOs come to the secondary market in the form of shares.

In a way, when you are buying an IPO, they take it directly from the company. But when you buy or sell any shares, it is between two investors. The company does not contribute to this.

How much tax will have to be paid on IPO earnings?

Under the Income Tax Act 1961, certain types of earnings like selling shares or mutual funds have to be taxed. Because shares are also considered assets. Company shares come under the category of financial assets.

According to the rule, every citizen of India will have to pay capital gain tax on whatever profit is made on selling the asset.

How much tax will have to be paid on IPO earnings? It depends on when you are selling it.

For example, if you sell the shares of an IPO in a gap of 12 months, then you will have to pay short-term capital gain tax.

For example, if you buy an IPO on 28 March 2025 and sell it before 1 year, then short-term capital gain tax will have to be paid.

Similarly, if you sell your shares after 12 months, you will have to pay a tax up to 20 percent.