Income Tax on Unlisted Shares in India

What are 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 share.

ITR for Capital Gains from Investment in Stocks
CA Assisted Income Tax Return filing for Individuals and HUFs having income from the sale of securities.
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ITR for Capital Gains from Investment in Stocks
CA Assisted Income Tax Return filing for Individuals and HUFs having income from the sale of securities.
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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 Capital Gain or Capital Loss.
  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.

  • LTCG – 20% with Indexation
  • STCG – taxed as per slab rates

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

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

  • ITR Form: Trader should file ITR 2 (ITR for Capital Gains Income) on Income Tax Website since income on the sale of unlisted stocks is a Capital Gains.
  • Due Date
    • Up to FY 2019-20
      31st July – for traders to whom Tax Audit is not applicable
      30th September – for traders to whom Tax Audit is applicable
    • FY 2020-21 Onwards
      31st July – for traders to whom Tax Audit is not applicable
      31st October – for traders to whom Tax Audit is applicable
  • Tax Audit: Since the income on the sale of unlisted stock is a Capital Gains Income, the applicability of tax audit under Section 44AB need not be determined.

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

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.

Got Questions? Ask Away!

  1. 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.

  2. Can I offset the Long term capital loss of listed shares with long term capital gains of unlisted shares?
    Please advise

  3. @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

  4. 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 ?

  5. Thanks @Kaushal_Soni,
    One further clarification, so per article Income Tax on Foreign Shares | Learn by Quicko
    the capital gains from foreign stocks will be treated as capital gains and can be set-off against other long term capital loss.

    So, say I have gained 80k by selling foreign stocks after holding it for more than 24 months and have long term capital loss of 50k from stocks listed in India.
    So these can be adjusted/setoff and will have to pay tax on 30k only.
    Is this understanding correct ?

  6. Hey @Saurabh

    LTCG intra head set-off is allowed irrespective of type of shares.

    Your understanding correct!

  7. vk9 says:

    Hi,
    I exercised my ESOP option in 2019 and received share certificate of a unlisted company.

    Do I need to declare the unlisted shares in ITR for every FY or just the FY when I was granted/purchased the unlisted shares ?

  8. Hi @Nireka , I’ve STCL from listed shares carry forwarded from previous year. I’ve received STCG from unlisted (pvt ltd) company due to ESOP buyback (TDS deducted as per salary slab).

    Can I offset the STCG from unlisted share with losses carry forwarded from listed shares?

  9. Hey @Shubhabrata_Naha

    Yes, you can set-off the STCL against STCG irrespective of the nature of securities i.e. whether listed or unlisted.

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