Tax on Unlisted Shares

author portrait

Sakshi Shah

Capital Gains
ITR-2
Trading Income
Unlisted Shares
Last updated on February 6th, 2024

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.

  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/loss.
  2. 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 GainsHolding PeriodTaxability
Short Term Capital Gains< 24 MonthsSlab rates
Long Term Capital Gains> 24 Months20% 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.

ParticularsAmount (INR)
Sales Consideration
Higher of: Actual sale value i.e.150 or,
FMV on date of sales i.e. 140
15,000
Purchase Value10,000
Indexed Purchase Value11,561
Long Term Capital Gains (15,000 – 11,561)3,439
Tax @20% under section 112688

ITR Form, Due Date, and Tax Audit Applicability

Find the best plan
Find the best plan
GET EXPERT HELP
Find the best plan
Find the best plan

Carry Forward Loss on Sale of Unlisted Shares

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 recognized stock exchange in India. Thus, STT is not paid on 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 ?

Continue the conversation on TaxQ&A

63 more replies

Participants

Avatar for Shrutika_Shah Avatar for Bharti_Vasvani Avatar for phoenix52 Avatar for Nireka Avatar for Hem_Shah Avatar for prk_ved Avatar for Riya_Jain Avatar for dwadke Avatar for Sreetama_Chakraborty Avatar for Yash_Kaviya Avatar for Vishagar Avatar for Saurabh Avatar for Anar_Desai Avatar for Niraj Avatar for Amarthya_Gurudu Avatar for Kaushal_Soni Avatar for Dev_C Avatar for Wolf_Roolf Avatar for RKS Avatar for prasidhi Avatar for Naveen_Jain Avatar for CA.Ankit Avatar for Sheirsh_Saxena Avatar for Laxmi_Navlani