Income Tax On Unlisted Shares In India (2024)

We all know that in today’s world, we need to pay taxes on everything be it the products we purchase or shares. Everything is taxable. Taxation for shares differ in listed and unlisted shares. The calculation of long term and short term capital gains vary in unlisted shares.

In this article, we will understand how the taxation on unlisted shares is calculated and how they are taxed.

Computation Of Capital Gains In Unlisted Market

The fair market value of unlisted shares must be established in order to calculate capital gains. The highest of the two actual sale prices would then be considered the sale value for tax payment purposes. The cost of acquisition as well as any expenses related to transfer would be deducted from the value calculated. Indexation would be permitted in the event of long-term capital gains, and would consider the indexed cost of purchase rather than the actual cost of acquisition.

How Are Unlisted Shares Taxed?

Unlisted shares are purchased through brokers or direct sellers on the unlisted markets, and they are also sold there in a similar way. The way in which taxes are applied differs from listed securities because no Securities Transaction Tax is applicable because these equities are not sold on the listed stock market.

The taxation of unlisted shares is calculated based on the duration the investor holds on to these shares after buying them. There are two types of capital gains based on the time frame:

Long-Term Capital Gain - In unlisted shares, the taxation for long-term capital gains (LTCG) is calculated if the holding period is more than 24 months. The tax rate for LTCG is 20% with indexation benefits as compared to listed shares that have a LTCG holding period of more than 12 months. The taxes on LTG in listed shares are waived up to Rs. 1 lakh. Anything over Rs. 1 lakh is subject to 10% tax with no benefits.

In case the unlisted shares are held by non-resident investors, the LTCG is taxed at the rate of 10% without any indexation benefit.

Short-Term Capital Gain - In unlisted shares, the short-term capital gain (STCG) ) is calculated if the holding is less than 24 months. The tax rate for STCG is taxed as per the investor’s tax slab as compared to listed shares that have a STCG holding period of less than 12 months. The taxes on STG in listed shares is subject to 15% tax with no benefits.

How To Declare Unlisted Shares In ITR?

An investor must disclose the information regarding unlisted shares that are held by them in the person's income tax return. Only ITR-2 and ITR-3 are applicable in this situation. If a person has business income in addition to the gains on the sale of shares, then these gains must be stated in ITR-3. These gains would be revealed in ITR-2 if the person does not have business income.

For Short-Term Capital Gains, these would have to be reported at Point No. A5 in the Schedule CG and for Long-Term Capital Gains, it would have to be disclosed at Point No. B9 in the Schedule CG.

It is mandatory to observe that even if the person only holds unlisted shares that were purchased in prior years and hasn't bought or sold any unlisted shares this year, he or she would still be required to disclose those in the ITR.

Things To Keep In Mind

There are certain things that one should be mindful of before filing an ITR. The following are a few things to be aware of:

• Information about the opening balance of securities on the first day of the fiscal year, the shares bought and sold, and the closing balance of securities on the last day of the fiscal year must be declared in Point (j) of Part A-General.
• If shares are sold at a loss, the resulting loss cannot be offset against any other types of income, such as a salary, a house or other property, company income, or any other forms of income; it can only be offset against capital gains.

Long-term capital loss arising on the sale of unlisted shares can be set off with LTCG only. However, short-term capital loss can be set off with both LTCG as well as STCG. If there is any loss left even after set-off, then the same can be carried forward for 8 years and set-off with capital gains that may arise in the next 8 years.

Income Tax On Capital Gains From Unlisted Shares That Are Sold After Getting Listed

The tax rates here will be identical to those applied to the purchase and sale of listed shares. That is, after a threshold of Rs. 1 lakh every financial year, long-term gains (sold after more than a year) are subject to a 10% tax. Gains on selling shares in less than a year will be taxed at a rate of 15% for short-term gains. The indexation benefit received on LTCG on the sale of an unlisted share is not applicable as the shares are listed.

Taxation of Gifted Unlisted Shares

The gift made by a relative will not attract any tax, however, the gains made from sale of such gifts will be taxed like any other asset. The taxation here remains the same for a person who sells his or her own shares. A point to note here is that, the cost price of the share for computing capital gains will be the cost paid by the original owner.

We trust that after reading this article, you have a comprehensive understanding of how income tax is applicable on unlisted shares, what is it calculated and what all should be kept in mind while filing an ITR. Taxation on these shares are not difficult to understand, in fact it is similar to listed shares but with a little variation.

Conclusion

We trust that after reading this article, you have a comprehensive understanding of how income tax is applicable on unlisted shares, what is it calculated and what all should be kept in mind while filing an ITR. Taxation on these shares is not difficult to understand, in fact it is similar to listed shares but with a little variation.

If you have any further queries or question, you can contact us through our website, Our experts will be happy to help answer all your queries.