Tatva Chintan Pharma Chem Limited IPO details and capital gain tax on selling IPO allotment | Capital gain on IPO

written by Income tax Expert | July 20, 2021

Tatva Chintan Pharma Chem Limited is a chemical manufacturing company that manufactures structure directing agents (SDAs), phase transfer catalyst (PTCs), pharmaceutical and agrochemical intermediates, and other specialty chemicals.

Its products are not only sold in India but also export to 25+ countries all over the world such as the USA, Germany, South Africa, China, and the UK. In FY 2020, total export contributed to 76% of total revenue from operations.

Company Financials:

Summary of financial Information (Restated Consolidated)
Particulars For the year/period ended (₹ in million)
31-Mar-21 31-Mar-20 31-Mar-19
Total Assets 3,148.03 2,489.38 1,875.08
Total Revenue 3,062.92 2,646.22 2,068.01
Profit After Tax 522.62 377.89 205.43

Objects of the Issue:

  • Funding capital expenditures requirements for expansion of Dahej manufacturing facility.
  • Funding capital expenditures requirements to upgrade R&D facilities in Vadodara.
  • To meet general corporate purposes.

Tatva Chintan Pharma IPO Subscription Status (Bidding Detail)

The Tatva Chintan Pharma IPO is subscribed 15.75x times as at the time of releasing this post. The public issue subscribed 24.27x in the retail category, 1.97x in the QIB category, and 14.24x in the NII category.

Category IPO Subscription
QIB  1.97x
NII  14.24x
RII  24.27x
Total  15.75x

 

Today is the last day to apply for this IPO and you can apply to this IPO using your ASBA account provided by your bank or using the services provided by your brokers such as Upstox, Zerodha or such other brokers.

Now, one might think that why is this IPO so much over subscribed? Is it that good?

The answer to same is Yes as well as No.

The IPO is good because as on date the specialty chemical sector is on a boom and the objects for which the IPO has been brought is also great i.e. expansion of it’s capacity which will in turn increase production and probably profit as well.

However, this is not the only reason as to why this IPO is so much over subscribed. As we know right now in India there is a rain of IPO’s and hence people are investing heavily in IPO’s and this being a comparatively small IPO of around Rs. 500 crore people have hugely subscribed the same and hence it is looking so much over-subscribed.

 

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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