Rights Issue: How to Apply and What Renunciation Means

A rights issue lets a listed company’s existing shareholders buy new shares at a fixed price, in proportion to their holding on the record date. The offer reaches your demat account as rights entitlements (REs). Apply for the shares through ASBA, sell the REs, or transfer them. Unused REs lapse when the issue closes.

Key facts

How a rights issue works

The company’s board fixes the issue price, the entitlement ratio and the record date. It then files a letter of offer with the stock exchanges and SEBI. The letter of offer is the document to read: it gives the price, the ratio, the dates, what the money will be used for, and how fractions are handled.

Here is a simple example. A company offers 1 new share for every 5 held, at ₹100 each. If you held 500 shares on the record date, you get 100 REs. Applying for all 100 shares means ₹10,000 is blocked in your bank account until allotment.

SEBI shortened the process in March 2025. Under the amended Regulation 85 of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, a rights issue must now be completed within 23 working days from the board meeting that approves it. The same framework lets a company allot shares to specific investors, such as those to whom promoters renounce their entitlement. Their details are published in an advertisement before the issue opens.

SEBI’s indicative schedule, counted in working days from board approval (T), runs like this:

Actual dates for each issue are in its letter of offer, so check those rather than counting days yourself.

Rights entitlements in your demat account

REs appear in your holdings as a separate security with its own ISIN, next to the shares that earned them. They are credited against the shares you held on the record date. If you buy the shares after the record date, you get no REs, but you can still buy REs on the exchange while they trade.

The RE ISIN is suspended as soon as the issue closes. After that, any REs not used for an application are worthless.

Applying through ASBA

SEBI’s FAQs say all investors in a rights issue must apply through ASBA. The application amount stays in your savings account but is blocked, and it is debited only for the shares allotted to you.

1. Check that the REs show in your demat holdings.
2. Read the letter of offer on the stock exchange website or the registrar’s website. Note the price and closing date.
3. Log in to your bank’s net banking and open its ASBA or IPO section, if your bank is a self-certified syndicate bank (SCSB). You can also submit a physical ASBA form at an SCSB branch, or use the application form on the registrar’s website.
4. Select the rights issue and enter your demat account details and PAN.
5. Enter the number of shares: up to your RE balance, plus any additional shares you want.
6. Confirm the amount to be blocked and submit before the closing date.
7. After allotment, check that the shares are credited to your demat account and the unused amount is unblocked.

A public issue allows only one application per bank account. In a rights issue, SEBI allows more than one application from a bank account, as long as the total stays within the entitlement applied for.

You can apply for more shares than your REs cover. The extra shares are allotted only if other holders leave shares unsubscribed, following the basis of allotment set out in the letter of offer.

If an ASBA application is rejected despite correct details, complain to the SCSB. SEBI’s FAQs say the bank must reply within 15 days. After that, you can go to the lead manager and to SEBI’s SCORES portal.

Selling or renouncing your entitlements

Renouncing means passing your right to someone else. There are two ways to do it.

• On-market: sell the REs through your broker on the NSE or BSE equity segment, like a share. Trades settle on a T+1 basis. Selling stops 3 working days before the issue closes. As with any sale from your demat account, the broker needs your DDPI or a TPIN authorisation to deliver them. Our guide to buying and selling shares covers those steps.
• Off-market: transfer the REs to another demat account with a delivery instruction through your depository participant. The off-market window closes before the issue closes.

A buyer of REs must apply through ASBA before the issue closes. REs bought and not applied for lapse, and the buyer loses the price paid for them.

Tax on selling REs

Under Section 90(6)(b) of the Income-tax Act, 2025, the cost of a rights entitlement you renounce is taken as nil, so the whole sale price is a capital gain. The Act counts the holding period from the date of the offer. REs trade for only a few weeks, so the gain is short-term. For sales before 1 April 2026, the matching rule sits in Section 55 of the Income-tax Act, 1961.

If you buy REs and then take up the shares, your cost for those shares is the price paid for the REs plus the issue price, under Section 90(6)(e). See our capital gains tax rates page for how gains are taxed, and ask a tax professional about complex cases.

What happens if you ignore it

Unused REs lapse after the issue closes and are removed from your holdings. You receive nothing for them. Your shares stay as they are, but if others take up the new shares, your percentage stake in the company falls.

If you do not want to invest more, selling the REs before trading ends is the way to get some value from them. A rights issue works differently from a share buyback, where the company buys shares back from holders. For the basics of how listed shares trade, see stock market basics.

Frequently asked questions

What is a rights entitlement?

A rights entitlement is your right to buy new shares in a rights issue. It is credited to your demat account as a separate security and can be used to apply, sold on the exchange, or transferred off-market.

Can I apply for a rights issue without holding the shares?

Yes, if you buy REs on the exchange or receive them off-market before the cut-off dates. You then apply through ASBA before the issue closes.

Can I apply for more shares than my entitlement?

Yes. Additional shares are allotted only if part of the issue remains unsubscribed, as per the basis of allotment in the letter of offer.

What happens to REs I do not use?

They lapse when the issue closes and are removed from your demat account. You get no payment for them.

Until when can I sell my rights entitlements?

On-market trading in REs closes 3 working days before the issue closes. The exact dates are in the letter of offer.

How long does a rights issue stay open?

SEBI requires a rights issue to stay open for at least 7 days and at most 30 days.

Is money debited when I apply?

No. The amount is blocked in your bank account under ASBA and debited only for the shares allotted. The rest is unblocked.

Sources

• Faster Rights Issue with a flexibility of allotment to specific investor(s), circular dated 11 March 2025 — SEBI (checked 17 Sep 2026)
• FAQs on Issue of Capital and Disclosure Requirements (updated 15 May 2025) — SEBI (checked 17 Sep 2026)
• FAQs on Rights Entitlement Trading — NSE (checked 17 Sep 2026)
• Rights Issues and Rights Entitlements FAQs — Zerodha (checked 17 Sep 2026)
• Income-tax Act, 2025 as amended by the Finance Act, 2026 — Income Tax Department (checked 17 Sep 2026)
• Tax on renunciation of right issue — ITATonline (checked 17 Sep 2026)