Listing SME shares on the SME platform (BSE SME and NSE SME) not only helps in capital infusion but also looks attractive from the tax perspective. The sale of SME securities by an investor to book profits is called a capital gain, and the investor is liable to pay capital gain tax. The rate of capital gain taxes significantly varies for the listed and non-listed SMEs. Check out the SME IPO tax benefits, including the short-term and long-term capital gain tax implications.
Any profit/gain resulting from the sale of a capital asset is known as capital gain and is charged with capital gain tax. You have to pay tax in the year when the capital asset has been transferred. Capital assets include land, house property, building, patents, machinery, jewellery, shares, debentures, mutual funds, trademarks, leasehold rights, etc. There are two types of capital gains: short-term capital gains and long-term capital gains, depending on how long an asset has been held and subject to different tax rates.
SME IPO Short-term Capital Gain Tax
Any capital gain derived from the sale of SME shares held for a period of upto 1 year is called short-term capital gain (STCG). The one-year applies to assets like listed equity and preference shares, debentures, government securities, UTI units, equity-oriented mutual funds, and zero-coupon bonds.
When an investor sells shares of a small and medium enterprise within a year, he will be charged with the short-term capital gains tax. SMEs whose securities are listed on the SME exchange attract a short-term capital gain tax rate of 15%. However, the sale of unlisted shares in the short term is charged with a higher STCG tax of upto 30%.
SME IPO Long-term Capital Gain Tax
How capital gain tax is charged on SME IPOs?
Suppose, an investor has bought 1,000 shares of a SME company at Rs. 20 then the total buy price will be Rs 20,000. Now, if the investor sells entire holdings within a year at Rs. 25, a 15% STCG tax will be applicable.
Acquisition cost = 1,000 shares*Rs 20 = Rs 20,000
Selling price = 1,000 shares*Rs 25 = Rs 25,000
Capital gain = Rs 25,000 – Rs 20,000 = Rs 5,000
Short-term capital gain tax = Rs 5,000*15% = Rs 750
In another scenario, if the investor sells all securities after a year at Rs 30, the profit derived at a Rs 10 price difference worth Rs 10,000 will be the long-term capital gain. Given that the capital gain is subject to STT, there will be zero LTCG tax.
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Frequently Asked Questions
Are there any capital gain tax benefits to BSE or NSE listed SMEs?−
Yes, SMEs whose shares are listed and traded under the SME segment on the BSE or NSE will have many capital gain tax advantages. The short-term and long-term capital gain tax rates on listed and non-listed SMEs are as follows;
Rate of capital gain tax on SMEs
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