IPO expenses do not receive an automatic GST input tax credit (ITC) approval or denial. Test each invoice under the normal section 16 conditions, establish whether the service supported the issuer’s own business, separate a fresh issue from an offer for sale (OFS), screen for section 17(5) blocked credits, and calculate any section 17(2) and 17(3) apportionment. A company generally has the strongest case for costs directly attributable to a fresh issue whose net proceeds are used in its business. Costs attributable to shareholders selling their existing shares in an OFS generally do not belong in the issuer’s claim.
The analysis is India-specific and should be made under the CGST Act and corresponding state GST law applicable to the tax period. Reported 2026 advance-ruling decisions point in this direction, but they are fact-bound and must be checked against the primary orders, jurisdiction, and appeal status before being relied on.
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Start with an expense-level answer, not an IPO-level answer
An IPO normally bundles many services: merchant-banker and issue-management work, underwriting, legal and due-diligence advice, registrar services, advertising, stock-exchange listing, audit, public-relations work, and technology or printing. GST eligibility can differ for every invoice. The fact that the issuer paid an invoice, or that the invoice mentions the IPO, does not by itself create entitlement.
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| Question for the invoice | Why it changes the result |
|---|---|
| Does it support the issuer’s fresh issue or shareholders’ OFS? | Fresh-issue proceeds go to the company; OFS proceeds go to selling shareholders. A company should not claim a shareholder’s cost merely because it administered or paid the bill. |
| Is the cost direct or shared? | Direct costs can usually be traced to the relevant component. Shared costs need a reasonable, consistent allocation recorded when the claim is prepared. |
| Were fresh-issue proceeds used for the company’s business? | Business use supports the section 16 “in the course or furtherance of business” test. A vague intention to raise capital is weaker than documented deployment. |
| Is a section 17(5) block or another restriction applicable? | Business purpose does not override a specific blocked-credit category or another statutory condition. |
| Does the input relate to taxable, zero-rated, exempt, or common activity? | Sections 17(2) and 17(3), with Rules 42 and 43, can require attribution or reversal, including where transactions in securities enter the exempt-supply calculation. |
Use this matrix for each vendor bill, credit note, and tax component. The conclusion may legitimately differ between two services in the same issue.
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Understand the transaction before testing GST
Fresh issue
In a fresh issue, the company creates and issues new shares and receives the subscription money. The relevant commercial question is what the company does with the net proceeds: for example, funding a project, repaying eligible borrowings, expanding operations, or another documented business purpose. The reported Telangana ruling described below treated qualifying fresh-issue costs as connected with the issuer’s business where the proceeds were used for business furtherance.
Offer for sale
In an OFS, existing shareholders sell their shares. The proceeds accrue to those shareholders, not to the issuer. Costs that are directly attributable to that sale therefore have a different beneficiary and business-purpose connection from costs incurred to raise the company’s own capital. The Telangana ruling report says the issuer’s claim for the OFS-related component was denied on that basis.
Combined fresh issue and OFS
Many offerings combine both components. Do not apply one percentage to every IPO bill without analysis. Identify direct fresh-issue costs, direct OFS costs, and genuinely shared work. Shared merchant-banker, legal, advertising, registrar, underwriting, and related costs need a documented allocation method that can be explained to a tax officer. No universal allocation percentage is established by the materials reviewed.
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Section 16 is the gateway, not the final answer
Section 16 of the CGST Act is the general entitlement provision for a registered person’s business inputs and input services. In practice, verify the conditions applicable to the relevant tax period, including:
- the company is registered and the supply is received for its business;
- the supplier has issued a valid tax invoice or other prescribed document;
- the service has actually been received;
- the invoice and tax details have been reported and matched through the applicable GST system requirements;
- the supplier has paid the tax where the law requires that payment for the credit condition;
- the company has furnished the required return and claimed the credit within the applicable time limit; and
- the company has paid the supplier within the statutory period where the relevant rule requires reversal for non-payment, then reclaimed in accordance with the law when payment is made.
Check the Act, Rules, notifications, and system requirements in force for the month of claim. A conclusion that an IPO service was used for business does not cure a missing invoice, receipt, reporting, payment, return, or time-limit condition. The CBIC-hosted CGST Act is the starting point for the operative text.
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Section 17(5) can override business use
Section 17(5) begins: “Notwithstanding anything contained in sub-section (1) of section 16 and subsection (1) of section 18, input tax credit shall not be available in respect of the following, namely:—” The provision then lists blocked categories. Review the actual service and facts against the current text rather than relying on a label such as “IPO expense.”
The reviewed text includes restrictions covering specified food and catering, club membership, certain motor vehicles and related services, specified construction costs, purchases taxed under the composition scheme, specified inputs of a non-resident taxable person, personal consumption, gifts and free samples, and specified taxes. Ordinary merchant-banker, legal, registrar, underwriting, advertising, and listing services are not named as a standalone IPO block in the text reviewed. That observation is not a blanket approval: a particular invoice could still fall within another blocked category or fail a separate section 16 or section 17 requirement.
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Sections 17(2) and 17(3): taxable, exempt, and common use
Where inputs or input services are used partly for taxable or zero-rated supplies and partly for exempt supplies, section 17(2) limits credit to the attributable portion. Section 17(3) says the value of exempt supplies includes “transactions in securities.” This wording places securities transactions in the apportionment calculation; it does not mean that every securities transaction is itself a taxable supply.
Rules 42 and 43 provide the attribution and reversal mechanics for inputs and input services and for capital goods. Apply the rule formulas and records to the relevant tax period, including any common-credit calculations. The legal treatment of an issuer’s fresh issue is debated in some analyses because a fresh issue creates new shares while an OFS transfers existing securities. The available ruling reports do not conclusively settle whether that distinction removes every possible Rule 42 consequence for fresh-issue costs. Document the position taken and obtain transaction-specific advice where the amounts are material.
CBIC’s Input Tax Credit Rules page and Sectoral FAQs provide official administrative material on attribution and examples. They should be read with the statutory provisions and amendments applicable to the claim period.
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A practical procedure for deciding each invoice
- Build the expense record. Capture the vendor’s legal name and GSTIN, invoice number and date, taxable value, GST amount, service description, payment date, and the GST return period in which credit is proposed.
- Identify the beneficiary. Read the engagement letter, scope, board papers, offer documents, and correspondence to determine whether the service benefited the issuer, selling shareholders, or both. Do not infer the beneficiary only from who paid.
- Tag the offering component. Mark the cost as fresh issue, OFS, or shared. For a mixed offering, retain the underlying work breakdown, fee letter, or other evidence that supports the tag.
- Test business use. For a fresh-issue tag, link the net proceeds to the company’s documented business plan and actual use. Keep the board-approved offer documents, use-of-proceeds statement, project budgets, bank records, and post-issue deployment evidence.
- Run the section 16 checklist. Confirm registration, valid documentation, receipt, supplier reporting and tax-payment conditions, return filing, time limits, and any payment-related reversal or reclaim requirement.
- Screen section 17(5). Classify the actual supply and check every relevant blocked-credit category in the law as amended for the period. “Professional fee” is not a substitute for this classification.
- Assess section 17(2) and 17(3). Decide whether the service is used exclusively for taxable or zero-rated business, exclusively for exempt activity, or commonly. If common, calculate attribution and any Rule 42 or 43 reversal.
- Allocate and approve. Apply the documented method to shared costs, have tax and finance owners review the file, and record the reasoning for inclusion, exclusion, or reversal.
- Reconcile after filing. Match the claimed amount to the electronic credit ledger, vendor data, credit notes, reversals, and any subsequent change in use of the service or proceeds.
How common IPO services should be analysed
| Cost type | Questions to ask | Indicative treatment |
|---|---|---|
| Merchant banker or issue manager | Does the mandate cover fresh issue, OFS, or both? Is the fee split in the engagement letter? | Fresh-issue portion can be considered if business use and all statutory conditions are established. OFS portion should not be folded into the issuer’s claim. Shared work requires a supportable allocation. |
| Underwriting | What securities and which component does the underwriting commitment support? | Trace the service to fresh issue or OFS and test business use, section 17 restrictions, and any common-use reversal. |
| Legal and due-diligence advisers | Which entity’s obligations and securities are covered by the work? | Separate issuer compliance and capital-raising work from advice primarily for selling shareholders. Mixed scopes need allocation. |
| Registrar and transfer-agent services | Does the work process subscriptions to the fresh issue, transfers in the OFS, or both? | Use the operational scope and records to allocate. Do not assume the issuer’s administrative role makes every OFS cost its own input. |
| Advertising, roadshows, and investor communication | Does the campaign promote the company’s fresh capital raise, the shareholders’ sale, or the combined offering? | Classify by campaign content, audience, and contractual scope; then apply the same fresh-issue/OFS and common-use tests. |
| Stock-exchange listing, filing, and audit work | Is the service required for the issuer’s continuing business and listing, or solely for a shareholder exit? | Analyse the precise deliverable and period. A listing-related description alone does not establish eligibility or eliminate apportionment. |
This table is a decision aid, not a statutory safe harbour. The invoice, contract, work product, and use of proceeds determine the defensible classification.
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A company claiming credit for a fresh-issue service should be able to show a chain from the input to its own business:
- the offer document and board approval identify the fresh-issue amount and stated purposes;
- the proceeds are deposited in identifiable company accounts;
- payments or investments can be traced to the stated projects, expansion, debt repayment, working capital, or other business purpose;
- the service provider’s work relates to obtaining or completing that company capital; and
- any later change in the use of proceeds is documented and considered in the GST treatment.
A general statement that “the IPO was for growth” is weaker than contemporaneous accounting and banking records. Where proceeds are partly used for a purpose outside the company’s business, evaluate whether the related input service must be apportioned or excluded.
Allocating costs in a mixed fresh issue and OFS
Direct costs first
Charge an invoice entirely to one component when the contract and work product show that it serves only the fresh issue or only the OFS. A fee for processing subscriptions to newly issued shares is different from a fee for transferring shareholders’ existing shares.
Shared costs second
For a combined mandate, choose a method that reflects the work actually performed. Possible evidence includes separate fee schedules, hours or deliverables by workstream, issue-size or transaction-volume drivers where they genuinely reflect the service, and contemporaneous instructions from the parties. The method must be reasonable, consistently applied, and retained with the calculation. Do not invent a percentage merely to maximise credit.
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Keep the allocation auditable
Retain the calculation, assumptions, source data, approvals, and any later true-up. If the fee is renegotiated, a credit note is issued, or the issue mix changes, update the GST treatment rather than leaving the original allocation untouched.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.What the recent ruling reports indicate
Telangana AAR report
VILGST reports a 2026 decision identified as 2026-VIL-173-AAR in which expenses attributable to a fresh-issue component were treated as eligible where net proceeds were used for business furtherance, while the issuer’s claim for the OFS-attributable component was denied because those proceeds accrued to existing shareholders. The report is available at VILGST’s case report.
The primary order text, applicant details, order date, precise reasoning, and appeal status should be verified before citation. An advance ruling ordinarily has limited statutory application to the applicant and the concerned or jurisdictional officers; it should not be described as a nationwide binding precedent without checking the governing law and order.
Haryana AAAR report
EY India reports that a Haryana Appellate Authority for Advance Ruling allowed ITC on services used to raise capital by focusing on the end use of funds. The alert expressly notes that the ruling did not address the interaction of sections 17(2) and 17(3), which can affect reversal. Read the report at EY India’s alert.
These reports are useful indications for structuring an analysis, not substitutes for the current statute or a transaction-specific opinion. The GST Council’s 47th Meeting agenda note reproduces section 17(5) material, but the Act itself remains the operative source.
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Records to retain for an audit or review
- vendor engagement letters, statements of work, fee schedules, and amendments;
- tax invoices, debit or credit notes, GSTIN verification, payment proofs, and return-matching records;
- the prospectus, offer documents, board approvals, and records distinguishing the fresh issue from the OFS;
- use-of-proceeds statements, bank trails, project budgets, and evidence of actual business deployment;
- work products showing what each adviser, registrar, underwriter, advertiser, or listing provider delivered;
- the direct-cost and shared-cost allocation workbook, assumptions, approvals, and revisions;
- section 17(2) and 17(3) analysis and Rule 42 or 43 calculations where common or exempt-related use is possible; and
- a written explanation for every excluded, claimed, or reversed invoice.
This is a practical file structure inferred from the statutory tests, not an exhaustive statutory checklist. Keep records for the applicable GST retention period and ensure finance, legal, and tax teams use the same allocation methodology.
Common errors and how to correct them
“The company paid, so the company can claim”
Payment identifies the cash payer, not necessarily the beneficiary. Reclassify costs that belong to selling shareholders and obtain supporting contracts before claiming.
“Every IPO cost is a capital cost, so ITC is blocked”
Capital-raising language alone is not a section 17(5) category. Classify the actual service, then apply the ordinary conditions and apportionment rules.
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The fresh-issue-versus-transfer distinction is important but not conclusively resolved for every Rule 42 consequence by the reported rulings. Address section 17(3), document the legal position, and calculate conservatively where required.
“One allocation percentage works for the whole IPO”
Different services can support different components. Use direct attribution first and a documented driver for genuinely shared work.
“The ruling settles the law everywhere”
Advance rulings have limited application and may be appealed. Verify the primary order, jurisdiction, amendments, and filing-date law before relying on a report.
When professional advice is warranted
Obtain an India GST adviser’s written analysis before filing where the offering has a large OFS component, proceeds have multiple uses, services are bundled under one global fee, the company has significant exempt or securities activity, or a section 17(2) or 17(3) reversal would materially change the claim. Give the adviser the contracts, allocation workbook, proceeds trail, and proposed return period; a short invoice list without the commercial facts cannot support a reliable conclusion.
Quick Recap
Decision checklist
- Fresh issue, OFS, or mixed offering identified?
- Beneficiary and service scope established for every invoice?
- Fresh-issue proceeds linked to the issuer’s business use?
- Section 16 invoice, receipt, reporting, payment, return, and time-limit conditions checked?
- Section 17(5) blocked-credit screen completed?
- Section 17(2) and 17(3), including securities in exempt-supply value, considered?
- Rules 42 and 43 calculations prepared where common or exempt-related use exists?
- Shared costs allocated on a reasonable, consistent, documented basis?
- Primary ruling text, jurisdiction, and appeal status verified before reliance?
- Audit file assembled and approved by responsible tax and finance owners?
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