Investing in unlisted shares involves buying equity in a company that has not undergone an initial public offering (IPO) to be listed on a stock exchange. As these shares are not traded publicly, their valuation and taxation can be more challenging to determine compared to listed shares. Unlisted shares are often transacted through private transactions or over-the-counter (OTC) markets.
What are Unlisted Shares?
Unlisted shares are shares of a company that are not traded on a recognized stock exchange. Unlike listed shares, which are bought and sold on stock markets, unlisted shares are not accessible for trading on a public platform. Typically, these shares are held by private companies or startups. Individuals investing in unlisted shares may consist of founders, early investors, or company employees.
Although unlisted shares carry the potential for returns, they entail specific risks and factors to consider. Valuation can be subjective, and selling these shares may pose challenges due to limited liquidity. Moreover, compared to publicly traded companies, information about the company may be less readily available.
Capital Gain on Sale of Unlisted Shares
These shares are not listed on any recognized stock exchange and hence the companies will not be paying the STT i.e. Securities Transaction Tax. Due to such, the period of holding will be considered as 24 months for determining the taxability.
- 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/loss.
- Short-Term Capital Gain (STCG): If an investor sells an unlisted stock held for up to 24 months, the gain or loss on such sale is a Short-Term Capital Gain/loss.
Income Tax on Unlisted Shares
| Capital Gains | Holding Period | Taxability |
| Short Term Capital Gains | < 24 Months | Slab rates |
| Long Term Capital Gains | > 24 Months | 20% under section 112 |
Note: If a Non-Resident Indian (NRI) invests in any unlisted shares then, the taxation for Long term capital gains will be 10% without Indexation.
Calculation of Capital Gains
For calculating the tax on unlisted shares, the trader has to derive sales consideration and purchase value.
Sales Consideration:
The Fair Market Value (FMV) determines the sale value of unlisted shares, not the market. If a transfer occurs below the FMV, section 50CA of the Income Tax Act considers the FMV as the sales consideration. However, if the transfer happens at or above the FMV, the sales consideration is the original transfer value.
Sales consideration = Higher of Actual sales value or, FMV as on date of transfer
Cost of Acquisition:
The purchase value in the case of unlisted shares will be the actual price that the investor has paid while purchasing the share. Further, the benefit of Indexation is also available for unlisted shares.
Let’s understand the calculation with the help of an example:
Mr. Swapnil purchased unlisted shares for INR 10,000 on 30th September 2020 and sold them for INR 15,000 on 31st December 2023. The FMV on the date of sale was 14,000. Here, as the actual transaction price is more than FMV the sales consideration will be INR 15,000. Further, the share will be a long-term capital asset as it’s holding period is more than 24 months.
| Particulars | Amount (INR) |
| Sales Consideration Higher of: Actual sale value i.e.150 or, FMV on date of sales i.e. 140 | 15,000 |
| Purchase Value | 10,000 |
| Indexed Purchase Value | 11,561 |
| Long Term Capital Gains (15,000 – 11,561) | 3,439 |
| Tax @20% under section 112 | 688 |
ITR Form, Due Date, and Tax Audit Applicability
- ITR Form: The trader should file ITR 2 (ITR for Capital Gains Income) since income on the sale of unlisted stocks is a Capital Gain.
- Due Date
31st July – for traders to whom Tax Audit is not applicable
31st October – for traders to whom Tax Audit is applicable
- Tax Audit: As the income on the sale of unlisted stock is a Capital Gains Income, the tax audit will not be applicable.
Carry Forward Loss on Sale of Unlisted Shares
- The investor can set off Short Term Capital Loss against both STCG and LTCG. They can carry forward the remaining loss for 8 years and set off against STCG and LTCG only.
- The investor can set off Long Term Capital Loss against LTCG only. They can carry forward the remaining loss for 8 years and set off against LTCG only.
FAQs
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 taxpayer can set off LTCL with LTCG and STCL with both STCG and LTCG. Further, the taxpayer can carry forward the remaining loss for 8 years.
STT i.e. Securities Transaction Tax is the tax on the purchase and sale of securities listed on a recognized stock exchange in India. Thus, STT is not paid on Unlisted Shares.
Hi @Aditya_s,
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.
Can I offset the Long term capital loss of listed shares with long term capital gains of unlisted shares?
Please advise
Hi @Niraj,
LTCL from listed shares can be set off against LTCG from unlisted shares since they are long-term and capital gain in nature.
Hi @Pankaj_Jindal
You can pay 10% tax without indexation benefit if the shares sold by you are listed on the stock exchange in India.
You can claim exemption u/s 54F for purchase of land if you are planning to construct house property on that land within 2 years of LTCG.
If the shares purchased are now unlisted on NSE/BSE. Can this loss be written off?
@Nihal,
Capital gain/losses arise only when there is a transfer of capital asset. If the capital asset is not transferred, there will not be any capital gain or loss. Hence, in your case, you cannot set it off against Capital Gains unless the capital loss is realised. Capital Losses can be booked but at the time of buy-back or liquidation of a company when the actual transfer occurs.
Hope this helps
@Kaushal_Soni @AkashJhaveri @Laxmi_Navlani @Divya_Singhvi @Sakshi_Shah1 can you?
Hey @Naveen_Jain
If stocks are delisted on the exchanges like BSE/NSE and you haven’t participated in delisting offer then stocks lying in your demat account has no value until it’s been transferred or sold. Capital gain income will arise only when the capital asset (i.e here shares) are sold or transferred to the beneficiary.
Hence, in your case, capital gain or loss shall not apply as shares are worthless (until it remains in demat account and not transferred) after company is delisted.
As per section 46(1), where a shareholder on the liquidation of a company, receives any money or other asset from the company in lieu of the shares held by him, such a shareholder shall be chargeable to income-tax under the head ‘Capital gains’ in respect of the money and the asset so received.
In this case, the consideration price for capital gain purposes shall be money received and/or the market value of the other assets on the date of distribution minus deemed dividend within the meaning of section 2(22)(c).
You can read below article for more insights about capital gain tax:
I hope, it helps!
Hi,
Does 1 lakh limit on LTCG is applicable to shares not listed in India, or we have to pay 20% tax even after holding it for more than 24 months ?
Let’s say I have received RSUs of the parent company whose shares are listed on NYSE, but I am selling these shares after 24 months and the profit that I received is 80,000.
Do I have to pay 20% tax on 80,000 ?
@Kaushal_Soni @Divya_Singhvi @Saad_C @Laxmi_Navlani @AkashJhaveri @Sakshi_Shah1 can you help with this?