Income Tax on Unlisted Shares in India

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Sakshi Shah

Capital Gains
ITR-2
Trading Income
Unlisted Shares

A Stock that is not listed on a recognized stock exchange is an unlisted stock. A trader or investor who buys and sells unlisted stocks should file ITR and pay tax on the income. Sale of Unlisted Shares is a Capital Gains Income as per the Income Tax Act. The Income Tax treatment of unlisted shares is not the same as the listed shares.

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Capital Gain on Sale of Unlisted Shares

Unlisted Stock is not listed on any recognised stock exchange. Thus, the Company does not pay STT i.e. Securities Transaction Tax on such shares. The period of holding is 24 months.

  1. Long Term Capital Gain (LTCG): If an investor sells an unlisted stock held for more than 24 months, gain or loss on such sales is a Long Term Capital Gain (LTCG) or Long Term Capital Loss (LTCL).
  2. Short Term Capital Gain (STCG): If an investor sells an unlisted stock held for up to 24 months, gain or loss on such sale is a Short Term Capital Gain (STCG) or Short Term Capital Loss (STCL).

Income Tax on Unlisted Shares

Income Tax on Trading in unlisted shares is similar to the tax treatment of other capital assets. The following are the income tax rates on the sale of unlisted shares of a Domestic Company or Foreign Company.

Note: In the case of a Non-Resident, LTCG on Unlisted Stock is 10% without Indexation.

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Tax on IPO Shares

If the shareholder sells Unlisted Equity Shares of a Company that issues an IPO (Initial Public Offering) to offer shares to the public. Such shares are later listed on a recognised stock exchange and STT is also paid on the same. The tax treatment on the sale of such shares would be the same as in the case of listed shares as follows:

ITR Form, Due Date and Tax Audit Applicability for Unlisted Shares

Carry Forward Loss on Sale of Unlisted Shares

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FAQs

How do I report income from sale of unlisted shares in the Income Tax Return?

You should file ITR-2 and report income from the sale of unlisted shares of a Domestic Company or Foreign Company as Capital Gains. You should pay income tax on it as per rates below:
– Long Term Capital Gain – 20% with indexation
– Short Term Capital Gain – slab rates
The assessee can set off LTCL with LTCG and STCL with both STCG and LTCG. The remaining loss can be carried forward for 8 years.

Can STT be paid on Unlisted Shares?

STT i.e. Securities Transaction Tax is the tax on the purchase and sale of securities listed on a recognised stock exchange in India. Thus, STT is not paid on Unlisted Shares. However, when a company offers shares to the public under IPO i.e. Initial Public Offering, such shares are later listed on the stock exchange. In such cases, STT is charged on the Unlisted Shares.

  • Priyanka M says:

    Can one save the income tax (20% with indexation as per this article) on LTCG from sale of unlisted shares, if one invests that income in another long term investment such as purchase of a residential property in India?
    Can you provide the info on any restrictions for such a provision if it exists?

    • Sakshi Shah says:

      When a taxpayer sells any long term capital asset, he/she can claim exemption from capital gains tax by investing into specified securities or units of the specified fund as per Sec 54E, 54EA, 54EB, 54EE. Thus, if you want to claim exemption from capital gains on sale of long term unlisted shares, you can make specified investments. Read more about it here – Capital Gain Exemption.

      For further questions, write to us at help@quicko.com

  • Atul says:

    What happens for shares which are Listed, but not in INDIA(Tax individual is Indian resident & tax payer)
    My company gives Stocks as employee program. And those shares are listed on National Stock Exchange (DAX/XETRA) of Germany.

    So which category does it fall Listed or Unlisted ?
    And if it falls in listed , is tax treatment same as what NSE/BSE listed shares tax treatment is ?

    • Anushka Shah says:

      Hey Atul,
      Income Tax on Foreign Shares is 20% with Indexation benefit for both listed and unlisted shares.

  • Sawhney P says:

    What happens for shares which are Listed, but not in INDIA(Tax individual is Indian resident & tax payer)
    My company gives Stocks as ESOP ESSP employee program. And those shares are listed on NASDAQ. Question is how to save the LTCG tax of 20%.Can I get benefit of 54F if I invest in residential house within 1 year before sale of shares or within 2 years after or construct within 3 years from date of sale and keep the net consideration in the capital gains account scheme. I hope there is no bar if shares are issued of a foreign listed company for 54F. Pls clarify at the earliest please. May support with sections etc.

  • VANZARA says:

    I have many shares of many companies which are not listed now on stock exchanges (delisted/ suspended/ not traded). How to book long term capital loss?

    • Anushka Shah says:

      Hey Vanzara,
      You can report the loss only once you sell the shares. Alternatively, if you feel the Company would not be listed again in future, you can write off the shares and report a loss in P&L Account.
      For the question in ITR-2, “Whether you have held unlisted shares at any time during the previous year?” – you must select ‘Yes’.

  • Rk says:

    In case of transfer of shares (unlisted) to existing directors of the company, is the individual eligible for exemptions on LTCG.

    • Anushka Shah says:

      Hey RK,
      As per Sec 54E, 54EA, 54EB, 54EE of the Income Tax Act, when any taxpayer sells any long term capital asset, he/she can claim exemption from capital gains tax by investing into specified securities or units of the specified fund. Thus, if you want to claim exemption from capital gains on sale of long term unlisted shares, you can do so as long as you are meeting the eligibility criteria under the specified sections. For more details, refer to this on Capital Gain Exemption.

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