Govt can rake in ₹5,400 crore from IPOs of NSE, SBI MF

The proposed initial public offerings (IPOs) of the National Stock Exchange (NSE) and SBI Mutual Fund are set to deliver a double bonanza — hefty gains for selling shareholders and a sizeable tax windfall for the Centre.

Since both the issues are entirely ‘offers for sale’, the selling shareholders will have to pay long-term capital gain tax at 12.5 per cent, subject to adjustment of the acquisition cost and exemptions available under the law. A back-of-the-envelope calculation suggests that the ₹30,000 crore NSE IPO could fetch the government ₹3,700-3,800 crore.

Similarly, the government is expected to garner about ₹1,500-1,600 crore from the estimated ₹13,000 crore SBI Mutual Fund IPO.

Per Section 112A of the Income Tax Act, long-term capital gains are taxed at a concessional rate of 12.5 per cent on profits exceeding ₹1.25 lakh, without the benefit of indexation.

Among the prominent shareholders offloading stakes in the NSE IPO are State Bank of India (2.47 crore shares), MS Strategic (Mauritius) (1.60 crore shares), Canada Pension Plan Investment Board (1.19 crore shares) and Aranda Investments (Mauritius) Pte Ltd (1.12 crore shares). Bank of Baroda, Stock Holding Corporation of India, and insurers GIC Re and New India Assurance will each sell between 1.05 crore and 1.09 crore shares.

The promoters of SBI Mutual Fund — State Bank of India and Amundi India Holdings — plan to sell 12.83 crore and 7.53 crore equity shares, respectively, through the IPO.

On June 17, the NSE formally filed its Draft Red Herring Prospectus (DRHP) with SEBI for a 100 per cent OFS issue. Existing shareholders are diluting nearly 6 per cent of their holdings, and the bourse is expected to command a valuation of over ₹5-lakh crore.

Manoj Purohit, Partner and Leader, Financial Services Tax, Tax & Regulatory Advisory, BDO India, said, “The capital gains tax framework draws a clear distinction between listed and unlisted financial assets, primarily through the lens of holding period.”

To qualify as ‘long-term’, listed equity shares and equity-oriented mutual funds enjoy a relatively shorter threshold, where gains become long-term after 12 months of holding and are taxed at 12.5 per cent (plus applicable surcharge and cess).

In contrast, investors in unlisted shares and certain categories of mutual funds (other than equity-oriented) must hold these assets for at least 24 months for them to qualify as long-term capital asset and become eligible for the concessional tax rate.

While there are no specific exemptions from capital gains tax, corporate investors and shareholders largely rely on offsetting losses where available.

The top 10 shareholders participating in the NSE OFS are expected to pocket gains of about $2.6 billion (₹24,600 crore), based on acquisition prices disclosed in the draft prospectus.

State Bank of India alone is estimated to realise gains of around ₹4,700 crore, while MS Strategic (Mauritius), a Morgan Stanley fund, could make approximately ₹2,934 crore, according to Reuters calculations based on prospectus disclosures and valuation estimates.