The government has been working on introducing an era of transparency. In the aftermath of demonetisation, eradicating black money was one of the key challenges facing the government. Until 2017, there were no valuation rules for the transfer of unlisted shares, which resulted in the transfer of valuable assets between individuals, and the generation of undeclared cash. So how to invest in unlisted shares in India?
In response to the government's amendments to the Income Tax Act, detailed guidelines have been introduced (Section 50CA read with Rule 11UA of the Income Tax Rules) regarding the valuation of unlisted equity shares. A transfer of unlisted equity shares must be made at a fair value, in accordance with prescribed valuation rules, if the owner owns such unlisted equity shares.
A recipient of unlisted equity shares was valued only based on the direct book value of the company whose unlisted equity shares had been transferred, under the former valuation guidelines, applicable to unlisted equity shares. However, no adjustment was provided in relation to assets held by the company through extensive crossholdings.
You could invest in a pre-IPO company that is currently unlisted but is expected to get listed in the near future. It's easy to invest in pre-IPOs because the shares are transferred directly into your Demat account, even though the trade happens off-record without the exchange's involvement.
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