Taxation on Unlisted Shares in India (Private Share)

stock market

Short-term capital gain tax on shares, long-term capital gain on shares exempt under the section, indexation on shares.

What you don’t know about the taxation of Unlisted Shares & the importance of knowing?

In the Indian economy, there are a lot of people who have their investments in shares. But as they are not listed, it is difficult to establish the tax liability for these unlisted shares. Taxation on Unlisted Shares in India is a complex subject and it often falls into errors or avoidance. Read this article to know more about the taxation of unlisted shares and the importance of knowing.


What are a short-term capital gain tax on shares and long-term capital gains tax on shares exempt under the section?

The most important thing you need to know about taxation is that a listed share will be taxed more than an unlisted one. The tax status of a company with a share that is listed on the stock exchange is called ‘public’. A company whose shares are not yet listed, but can be traded privately, will have an ‘unlisted’ status.

If you have shares in a company but are not publicly traded, the taxation rules are much more complicated. In this case, one has to pay income tax on dividends and capital gains from owning these shares. Unlisted securities are taxed differently than listed ones. In this scenario, it is termed short-term when the stock is sold within 24 months. The money is added to the person’s income and taxed marginally. After owning unlisted shares for more than 24 months, earnings are taxed as long-term capital gains. After indexation, such profits are taxed at 20%.

But there is a notion called fair market value when it comes to unlisted securities (FMV). A commercial banker is appointed by the firm to establish its stock’s FMV. If the taxpayer sells equities below the FMV, FMV is considered to be the selling price for income tax authorities.

Long-term capital losses may only be compensated with long-term capital profits. Short-term capital losses can be compensated for short-term capital gains as well as long-term capital gains. For the following eight years, remaining losses may be sustained.


How much is the tax on unlisted equity capital gains which are sold after listing?

Tax rates are the same here as when shares are purchased and sold. In other words, long-term profits (sold in excess of one year) are taxed at 10% after a Rs 1 lakh threshold every financial year. Short-term profits, that is, earnings in one year or less from the sale of shares, are taxed at 15%.


What is indexation on Shares? 

As you may have seen, the Long term Capital Gains had an indexing benefit when it was sold as an unlisted share. But the indexing gain was lost when the shares were listed.

To address this issue, the Government has permitted cost prices indexation for shares listed after 31 January 2018. The indexation will not, however, last for the whole holding period but just for the 2017-18 financial year.

For instance, in May 2018 an unlisted XYZ company listed its shares. These shares have been acquired for Rs 200 in FY14-15. In FY21-22 you sold the equity. You will index and inflate the cost price solely for computing capital gains until FY17-18 and not until the financial year in which the sale was carried out.


When to buy public unlisted shares?

You can buy public unlisted shares in many different ways, including through an over-the-counter broker, direct trade with the company, or through a platform. However, when you buy these shares you will not be able to sell them on the market until the company has listed them. Get in touch with us for more information on the same.


What is the cost of Buying and Selling Unlisted shares?

Unlisted shares are not as liquid as listed shares and as such, trading them is more expensive. Purchasing unlisted shares entails a brokerage fee of around 4% of the total purchase price and selling unlisted shares will incur an 8% brokerage fee.

Tax implications of owning unlisted shares, and how it will affect your annual income tax return.

The purchase of unlisted shares also has tax implications, which would affect your annual income tax return. If you are not sure about the implications or how it works, you can consult us for more information.


How to avoid this problem?

If you are buying shares in a company that is not listed on the stock exchange, you must find out all of the tax consequences before making your purchase. This means that you need to know if any taxes will be payable when you sell your shares, how much of the sale price will be paid in taxes, and so on. Failure to do this could have some very serious consequences for both yourself and your heirs.


How to invest in a Mutual Fund?

A mutual fund is a portfolio of stocks designed to profit from the growth of those stocks. To invest in a mutual fund, an individual needs to purchase shares that represent their percentage of ownership in the fund’s assets. The price to buy or sell those shares fluctuates as the value of the changes of the underlying asset. You should always work with a financial advisor to get information about taxation if you have unlisted shares. The tax deduction will not be available if the stocks are not traded on an established stock exchange, so it’s best to take the time to find out what is best for your situation.



If you need any help with the information in the blog, please do not hesitate to contact us. Get detailed information regarding unlisted shares before investing and reap the benefits.

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