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.

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 trader need not determine the applicability of tax audit under Section 44AB of the Income Tax Act.

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 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.

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. Hi @Pankaj_Jindal

    1. You can pay 10% tax without indexation benefit if the shares sold by you are listed on the stock exchange in India.

    2. 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.

  4. If the shares purchased are now unlisted on NSE/BSE. Can this loss be written off?

  5. @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

  6. 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!

  7. 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 ?

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