By ipomarket.in Editorial Team · Last reviewed: 2026-08-25
Disclaimer: This article is for informational purposes only and does not constitute investment advice. IPO investments are subject to market risks. Please read the offer document carefully and consult a SEBI-registered investment advisor before investing.
A common belief among retail investors is that SME IPOs come with some kind of tax advantage over mainboard IPOs. Older articles and forum posts still repeat this. The short answer, based on the current tax framework, is that there is no statutory tax difference between the two once the shares are listed. Both are treated as listed equity shares and taxed under the same capital gains rules.
This article explains what is actually confirmed, what the current rates are, and where SME and mainboard IPOs really differ (hint: it is risk and liquidity, not tax).
The core point: taxation follows the share, not the platform
Whether your shares are allotted through an SME IPO listed on BSE SME or NSE Emerge, or through a mainboard IPO on the main BSE or NSE, the income tax treatment after listing is the same. What decides your tax is:
- How long you held the shares (holding period), and
- Securities Transaction Tax (STT) being paid at the time of sale, which is standard for on-exchange equity trades.
The listing platform itself does not create a separate tax category. There is no special "SME shares" slab in the Income Tax framework as it currently stands.
Current tax rates (post 23 July 2024)
The Union Budget presented on 23 July 2024 changed the capital gains rates that matter to IPO investors. These apply to all listed equity shares, SME or mainboard alike.
Short-Term Capital Gains (STCG)
If you sell listed equity shares within 12 months of allotment, the gain is short-term. STCG on listed equity where STT is paid is taxed at 20% (plus applicable surcharge and cess) under Section 111A. Before 23 July 2024, this rate was 15%.
Long-Term Capital Gains (LTCG)
If you hold for more than 12 months, the gain is long-term. LTCG on listed equity above ₹1.25 lakh in a financial year is taxed at 12.5% without indexation, under Section 112A. Before the change, the LTCG rate was 10%.
The ₹1.25 lakh exemption is per financial year and applies to your aggregate long-term gains on listed equity and equity mutual funds, not per IPO.
When does your holding period start?
Your holding period starts from the allotment date, which is when the shares are credited to your demat account, not from the day you applied or the day you sell. This matters because a stock held for just under 12 months falls under STCG, while crossing the 12-month mark shifts it to LTCG. The same rule applies to both SME and mainboard allotments.
If you are still getting comfortable with the mechanics, our explainer on the IPO allotment process covers how and when shares actually land in your account.
A worked example
Suppose you invested ₹1,00,000 in an IPO and it grew to ₹1,50,000, a gain of ₹50,000. The outcome is identical whether it was an SME or a mainboard issue.
Sold after 6 months (short-term):
- Gain: ₹50,000
- STCG at 20% = ₹10,000 (plus surcharge and cess as applicable)
Sold after 18 months (long-term):
- Gain: ₹50,000
- This is below the ₹1.25 lakh LTCG exemption for the year, so if you have no other long-term equity gains, the tax could be nil on this gain.
Swap "SME" for "mainboard" in the example above and nothing changes. The tax is driven by holding period and the ₹1.25 lakh threshold, not by which platform the company listed on.
(These figures are illustrative to show the method. Surcharge and cess depend on your total income, and the exemption is shared across all your long-term equity gains for the year.)
Where SME and mainboard IPOs genuinely differ
The real differences are structural and risk-related, not fiscal. A few worth noting:
- Post-issue paid-up capital: SME platform issues are subject to a cap on post-issue paid-up capital, whereas mainboard companies have a higher minimum threshold. This determines eligibility for each platform, not tax.
- Market making: Market making is mandatory for SME IPOs for a defined period after listing to support liquidity, while it is not compulsory on the mainboard.
- Volatility and liquidity: SME stocks are typically smaller by market capitalisation and can see sharper price swings and thinner trading volumes than larger, more established mainboard companies.
So the choice between SME and mainboard should turn on risk appetite, liquidity needs and business quality, not on any imagined tax saving. Our comparison of the two, mainboard vs SME IPO differences, goes deeper into these structural points.
Why do older articles claim "SME tax benefits"?
Some pre-2024 write-ups suggested SME listings offered concessions such as "no LTCG tax" on STT-paid listed securities. Those claims reflect an older rate regime and were written before the 23 July 2024 changes. They should not be read as current fact. No credible current source shows SME shares enjoying LTCG treatment different from mainboard shares.
If you come across such a claim, check its date. Anything describing 10% LTCG, 15% STCG, or a blanket LTCG exemption on SME shares is describing the pre-July 2024 position.
Keeping clean records
Because the tax hinges on holding period and gain, keeping your allotment date, cost and sale details organised makes filing far easier, especially if you apply across several IPOs in a year. A dedicated read on this is how to maintain IPO trade records for tax filing.
FAQ
Are SME IPO shares taxed at a different rate than mainboard IPO shares?
No. Based on the current framework, both are listed equity shares taxed under the same capital gains rules. STCG (holding up to 12 months) is at 20% and LTCG (holding above 12 months) is at 12.5% on gains above ₹1.25 lakh in a financial year, provided STT is paid. The listing platform does not change this.
When does my holding period begin for an IPO?
From the allotment date, the day shares are credited to your demat account. Crossing 12 months from that date moves your gain from short-term to long-term treatment.
How much is the LTCG exemption?
Long-term capital gains on listed equity up to ₹1.25 lakh in a financial year are exempt. Gains above that are taxed at 12.5% without indexation. This threshold is aggregate across your listed equity and equity mutual fund gains for the year, not per IPO.
Did SME shares ever have a tax advantage?
Older articles from before the 23 July 2024 budget describe different, lower rates (such as 10% LTCG and 15% STCG) and, in some cases, an exemption framing. Those reflect the earlier regime and are outdated. We could not find any current official clarification granting SME shares special tax status.
What actually differs between SME and mainboard IPOs then?
The differences are structural: post-issue capital limits, a mandatory market-making requirement for SME issues, and generally higher volatility and lower liquidity in SME stocks. These affect risk, not the tax rate.
Bottom line
If you are choosing between an SME and a mainboard IPO expecting a tax edge on either side, that edge does not exist under the current rules. Both are taxed as listed equity: 20% STCG, 12.5% LTCG above ₹1.25 lakh, with the holding period counted from allotment. Base your decision on business quality, liquidity and your own risk tolerance instead.
Last reviewed: 2026-08-25.