Profits On Sale Of IPO Shares Can Be Treated Either As Business Income Or Capital Gains

Whether the profits on sale of shares on listing and allotted under an IPO is a business income or capital gains would depend on facts of the case. The profits on sale of IPO shares sold on listing can either be treated as normal business income or capital gain depending on the volume, funds used for such investments and utilised, and their treatment in the books of accounts. However, it cannot be treated as a speculative transaction.

Any capital gains arising on sale of a residential property which is held for less than 24 months is treated as short-term in nature and will be clubbed with your other incomes and taxed at the applicable slab rate. There are no tax exemptions available in case of short-term capital gains (STCG). The amount of stamp duty and registration charges is included in your cost for the purpose of computing capital gains. Under Section 48 of the Income-tax Act, 1961, the home loan interest paid is not considered as part of your cost of acquisition for the purpose of computation of capital gains since the same is allowed as deduction under Section 24 of the Act.

Since the apartment is sold after two years, the profits are long-term, and you can claim exemption under Section 54F of the Income-tax Act, 1961, by investing the LTCG for buying a residential house property within a period of two years from date of sale of the property. If you book an under-construction property, the construction needs to get completed within three years.

If the full capital gains are not utilised for this purpose before the due date of filing of your income tax return (ITR), i.e., July 31, 2026, you have to deposit the amount of unutilised LTCG in a bank account to be opened under the Capital Gains Account Scheme. You can withdraw this money for the purpose of acquiring the property.