IPO in India: Complete Guide Meaning, Process, How to Apply, Allotment, Listing & Tax Rules

What Is an IPO?

An IPO (Initial Public Offering) is the process by which a private company offers its shares to the general public for the first time to raise capital by listing on a stock exchange (BSE or NSE in India). Through an IPO, a company transitions from being privately held to becoming a publicly traded company, with shares available for anyone to buy and sell on the stock exchange.

An IPO serves two primary purposes: (1) raising fresh capital for the company to fund growth, repay debt, or fund acquisitions; and (2) providing an exit opportunity for existing shareholders (promoters, private equity investors, venture capitalists) to monetise their investment.

In India, IPOs are regulated by the Securities and Exchange Board of India (SEBI) under the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (ICDR Regulations) and the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations).

India is the world’s most active IPO market in terms of number of issues with 240+ IPOs in FY 2023-24 and similar volumes in FY 2024-25, including landmark issues like Hyundai India (₹27,870 crore  the largest Indian IPO ever).

Key Takeaways

• An IPO is a company’s first sale of shares to the public through a stock exchange listing
• India’s IPO market is regulated by SEBI; companies list on BSE (Bombay Stock Exchange) or NSE (National Stock Exchange)
• IPO applications can be submitted via UPI (₹2 lakh limit), ASBA (for amounts above ₹2 lakh), or through your bank/broker’s online platform
• Allotment in oversubscribed IPOs for retail investors (RII category) is done by lottery
• Listing gains are not guaranteed many IPOs list below issue price; research is essential
• Short-term capital gains on IPO shares sold within 12 months: 20%. Long-term (after 12 months): 12.5%
• Grey Market Premium (GMP) is an unofficial indicator of expected listing price but is unreliable
• SME IPOs (on BSE SME, NSE Emerge) are for smaller companies with lower issue sizes

Types of IPOs in India

1. Fresh Issue

The company issues new shares to the public. The money raised goes directly into the company’s treasury for business use expansion, debt repayment, working capital, or acquisitions.

2. Offer for Sale (OFS)

Existing shareholders (promoters, PE/VC investors, employees with ESOPs) sell their existing shares to the public. The money goes to the selling shareholders NOT to the company. No new shares are created; ownership simply transfers from existing private shareholders to public investors.

3. Combination (Fresh Issue + OFS)

Most large IPOs in India are a combination the company raises fresh capital AND existing shareholders partially exit. For example, Zomato’s 2021 IPO had ₹9,000 crore fresh issue + OFS.

IPO Categories in India

Mainboard IPO (BSE / NSE Main Board)

For companies with paid-up capital above ₹10 crore post-issue (or net worth criteria). Standard SEBI ICDR regulations apply. Full disclosure requirements, mandatory profitability track record (with some exceptions for tech companies under SEBI’s alternate route).

Minimum Application: One lot (varies by IPO, typically ₹10,000–₹15,000 minimum investment)

SME IPO (BSE SME / NSE Emerge)

For small and medium enterprises with paid-up capital up to ₹25 crore. Lower compliance requirements, IPO size typically ₹1 crore to ₹50 crore, compulsory market making for 3 years post-listing.

Key Difference from Mainboard: SME IPO allotment is on a proportionate basis (not lottery) for applications up to the minimum lot. Minimum application size is higher (1 lot can be ₹1–2 lakh).

SME IPO Boom: India saw 200+ SME IPOs in FY 2023-24, with many delivering exceptional listing gains. However, SEBI tightened SME IPO regulations in 2024 due to concerns about promoter manipulation and excessive pricing.

SEBI Eligibility Criteria for Mainboard IPO

To list on the main board, a company must meet SEBI ICDR criteria. Key requirements include:

Track Record Route (Profitability Route): - Net tangible assets of ≥ ₹3 crore in each of the preceding 3 years - Average consolidated pre-tax operating profit ≥ ₹15 crore in 3 of the preceding 5 years - Net worth ≥ ₹1 crore in each of the preceding 3 years

Alternative Route (for technology / innovation companies): - No profitability requirement - Higher minimum issue size (₹100 crore+) - Must have institutional anchor investors - Used by: Zomato, Paytm, Nykaa, Delhivery  all loss-making at the time of IPO

Minimum Issue Size: ₹10 crore for mainboard

Promoter Contribution: Minimum 20% post-IPO, locked in for 3 years (for fresh issue); in OFS, 20% of post-IPO capital held by promoters locked for 1 year

Pre-IPO Placement Lock-in: Shares issued in the 180 days prior to IPO filing are locked in for 6 months post-listing

How to Apply for an IPO in India Complete Process

Method 1: UPI Application (For Retail Investors Up to ₹2 Lakh)

Step 1: Log in to your broker’s trading app or your bank’s net banking/mobile app.

Step 2: Navigate to the IPO section. Select the current IPO.

Step 3: Enter: number of lots, bid price (enter the cut-off price for maximum allotment probability), UPI ID.

Step 4: Submit the application. You will receive a UPI mandate request on your UPI app (Google Pay, PhonePe, Paytm, BHIM).

Step 5: Approve the mandate  this blocks the bid amount in your bank account (the amount is NOT debited; it is merely blocked). The block is released if you don’t get allotment or if you reduce your bid.

Step 6: After allotment, only the allotted amount is debited from your account; the rest is unblocked.

Important: The UPI mandate must be approved before the IPO closes. If you apply on the last day, approve promptly.

Method 2: ASBA (Application Supported by Blocked Amount)

ASBA is the mandatory mechanism for all IPO applications above ₹2 lakh (NII/HNI category) and the underlying mechanism for retail applications too.

Process: - Apply through your bank’s net banking (if the bank is a SCSB Self-Certified Syndicate Bank) - Fill in: Demat account number (DP ID + Client ID), PAN, lot size, bid price - Amount is blocked (not debited) in your bank account - Blocked amount earns interest as it remains in your account

All major Indian banks are SCSBs: SBI, HDFC Bank, ICICI Bank, Axis Bank, AU Small Finance Bank, Kotak Mahindra Bank, Bank of Baroda, etc.

Method 3: Through a SEBI-Registered Broker

Apply via your stock broker’s trading platform they submit your application to the exchange. Most modern apps make this seamless.

Grey Market Premium (GMP) What It Is and Why You Should Be Careful

Grey Market Premium (GMP) is an unofficial, unregulated market where IPO shares or application forms are bought and sold before official listing. It gives an indication of expected listing gains.

How GMP Works: - If an IPO has issue price ₹500 and GMP is ₹150, the expected listing price is ₹650 - GMP is a crowd-sourced market sentiment indicator not a guaranteed price - GMP fluctuates daily during the subscription period

Why GMP Is Unreliable: - GMP is based on unregulated, illegal grey market transactions - It can be manipulated by operators to generate excitement - GMP of ₹200+ has resulted in IPOs listing at issue price or below (Paytm IPO listed -27% below issue price on Day 1 despite positive grey market chatter) - SEBI has consistently warned investors against making decisions based on GMP

Use GMP as one data point among many not as a sole determinant of your IPO application decision.

IPO Allotment How It Works (Retail Category)

For heavily oversubscribed IPOs in the retail category, allotment is done by lottery:

Example: If an IPO’s retail portion receives 50 lakh applications for 5 lakh lots, the subscription is 10x. The computer randomly selects 5 lakh applicants to receive 1 lot each. Each applicant who applied for ANY number of lots gets at most 1 lot  applying for 10 lots gives you the same allotment probability as applying for 1 lot in heavily oversubscribed IPOs.

To maximize allotment probability in oversubscribed IPOs: - Apply through multiple demat accounts in the family (one application per PAN) - Apply from different family members’ demat accounts (each PAN gets one chance) - Apply at the cut-off price always bid at the cap of the price band - For very popular IPOs, apply from as many family accounts as possible (spouse, parents, siblings)

Tax Implications of IPO Investment in India

Capital Gains Tax on IPO Shares (Post-Budget 2024)

Short-Term Capital Gains (STCG): - Holding period: Less than 12 months from listing date - Tax Rate: 20% (increased from 15% in Budget 2024) - Applies to: Listed shares sold within 12 months

Long-Term Capital Gains (LTCG): - Holding period: 12 months or more from listing date - Tax Rate: 12.5% without indexation (increased from 10% in Budget 2024) - Exemption: First ₹1.25 lakh per year of LTCG is exempt (increased from ₹1 lakh in Budget 2024) - Applies to: Listed shares sold after 12 months

Securities Transaction Tax (STT): - Paid on every equity transaction (purchase and sale) through the exchange - STT on delivery-based equity purchase: 0.1% of transaction value - STT on delivery-based equity sale: 0.1% of transaction value - STT is not a separate income tax; it reduces your effective capital gain

Tax Treatment of Allotment Date

Capital gains holding period starts from the allotment date (not the listing date or application date). For refund of unallotted amounts, no tax applies  the amount is simply returned to your bank account.

Dividend from IPO Shares

Any dividends received from shares post-IPO are added to your total income and taxed at your applicable income tax slab rate (same as salary income).

Pre-IPO Shares Tax Treatment

If you received shares through ESOPs, pre-IPO placement, or as a founder: - Pre-IPO shares held for 24+ months: LTCG at 12.5% - Pre-IPO shares held for less than 24 months: STCG at applicable slab rates - Note: Pre-IPO shares are UNLISTED at time of acquisition different tax treatment than listed shares

How Banks Support IPO Processes

ASBA Banking Services: AU Small Finance Bank, as a Self-Certified Syndicate Bank (SCSB), facilitates ASBA applications for IPO investors  blocking the bid amount in your account while keeping it in your account until allotment.

IPO Financing for HNIs: Banks offer IPO funding (leverage) to HNI investors applying in the NII category. Investors put in 5–15% margin and the bank funds the rest (e.g., invest ₹1 crore application with only ₹5–15 lakh own funds). This amplifies both gains and losses.

Corporate Clients Going for IPO: Bank supports pre-IPO companies with business banking requirements  current accounts for ESOP administration, foreign currency accounts for global investors, escrow services for IPO proceeds, and working capital facilities during the pre-IPO growth phase.

Conclusion

An IPO is one of the most significant events in a company’s lifecycle the moment it opens its ownership to the public and accesses the capital markets. For investors, IPOs offer an opportunity to participate in a company’s growth story from an early stage. But IPO investing requires the same discipline as any equity investment: study the fundamentals, assess the valuation, understand the risks, and never invest based solely on hype, grey market premiums, or listing gain expectations.

India’s IPO market is one of the most vibrant in the world, with strong regulatory oversight from SEBI ensuring investor protection. Whether you are a retail investor applying through your mobile app, an HNI looking for listing day gains, or an entrepreneur exploring an IPO for your company, understanding the mechanics of the IPO process is your first step toward making informed decisions.

For businesses planning a public listing, or pre-IPO companies building financial discipline, AU Small Finance Bank provides robust business banking solutions from multi-currency current accounts to ESOP administration banking to working capital facilities that support the growth trajectory required for a successful public offering.

Frequently Asked Questions (FAQs)

Can I apply for multiple IPOs with the same PAN?

You can only apply ONCE per PAN per IPO. Multiple applications from the same PAN in the same IPO are rejected. However, different family members with different PANs can each apply for the same IPO.

How is IPO allotment done in India?

For retail investors in oversubscribed IPOs, allotment is done by computer-based lottery  each eligible applicant (who applied at the cut-off price and meets other criteria) gets one chance. In undersubscribed IPOs, allotment is proportionate.

What is the cut-off price in an IPO?

“Cut-off” means you agree to pay whatever final price is determined through the book-building process (usually the cap of the price band). Applying at cut-off maximises your chances of allotment. If you bid at a lower price and the final price is higher, your application is rejected.

How long does money remain blocked in ASBA/UPI for an IPO?

From the time you apply until allotment typically 6–7 days (to be reduced to 3 days for T+3 IPOs). During this period, the amount is blocked but remains in your account and earns interest.

What are the tax implications of selling IPO shares?

If sold within 12 months of listing: Short-term capital gains tax at 20%. If sold after 12 months: Long-term capital gains tax at 12.5% (first ₹1.25 lakh exempt per year). Rates per Budget 2024.

What is GMP (Grey Market Premium) in an IPO?

GMP is an unofficial indicator of expected listing premium, traded in an unregulated grey market. A GMP of ₹100 on an IPO priced at ₹500 suggests the expected listing price is ₹600. However, GMP is unreliable and can be manipulated  do not base your investment decision solely on GMP.

Can NRIs apply for IPOs in India?

Yes, NRIs can apply for Indian IPOs through their NRE or NRO demat accounts linked to their bank accounts. NRIs should ensure they have an NRI demat account and meet FEMA requirements for IPO investments.

This article is for informational and educational purposes only and does not constitute investment advice. Investing in IPOs involves market risk. Please read the DRHP/RHP carefully and consult a SEBI-registered investment adviser before investing.

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