How to Calculate Capital Gain Tax on the Sale of Unlisted Shares ?

How to Calculate Capital Gain Tax on the Sale of Unlisted Shares

Investing in unlisted shares—shares of companies that are not listed on stock exchanges like NSE or BSE—is becoming increasingly popular in India. Many investors see them as an opportunity to invest in startups, pre-IPO companies, and growing businesses.

But when it comes to selling these shares, one common question arises:
👉 How is capital gains tax calculated on unlisted shares?

Let’s simplify it step by step.

1. Understanding Capital Gains on Unlisted Shares

Capital gains are the profits you earn when you sell an asset for more than its purchase price.
For unlisted shares, the holding period determines whether the gain is classified as Short-Term Capital Gain (STCG) or Long-Term Capital Gain (LTCG).

• Short-Term Capital Gain (STCG): If shares are held for less than 24 months, the profit is treated as STCG.
• Long-Term Capital Gain (LTCG): If shares are held for more than 24 months, the profit is LTCG.

2. Tax Rates on Unlisted Shares

• STCG: Taxed at the investor’s applicable income tax slab rate.
• LTCG: Taxed at a flat 20% with indexation benefit.

👉 Indexation allows you to adjust the purchase price of shares based on inflation (using the Cost Inflation Index), which reduces your taxable gain.

3. Example of Capital Gain Tax Calculation

Let’s assume:

• You purchased unlisted shares in June 2020 for ₹5,00,000.
• You sold them in July 2023 for ₹10,00,000.
• Holding period: More than 24 months → LTCG applies.

Step 1: Apply indexation

Suppose the Cost Inflation Index (CII) in FY 2020–21 was 301 and in FY 2023–24 is 348.

Indexed Cost of Acquisition = (Purchase Price × CII of Sale Year) / CII of Purchase Year
= (₹5,00,000 × 348) / 301
= ₹5,78,071

Step 2: Calculate Capital Gain

Capital Gain = Sale Price – Indexed Cost of Acquisition
= ₹10,00,000 – ₹5,78,071
= ₹4,21,929

Step 3: Apply Tax Rate

LTCG Tax @20% = ₹4,21,929 × 20% = ₹84,386 (plus cess and surcharge, if applicable).

4. Key Points to Remember

• Gains are taxed even if the shares are not listed on any exchange.
• Documentation of purchase price and sale consideration is essential.
• Unlisted shares sold by NRIs may also attract TDS (Tax Deducted at Source).
• You can set off capital losses from other investments against gains (as per Income Tax Act rules).

JM Financial Services – Your Trusted Partner

If you are exploring investment opportunities in unlisted shares or need guidance on tax planning, JM Financial Services offers expert advisory and investment solutions to help you make informed decisions.

FAQs

Q1. How are unlisted shares taxed in India?
Unlisted shares are taxed as per capital gains rules: STCG (slab rates) for less than 24 months holding, LTCG (20% with indexation) for more than 24 months.

Q2. Do I need to pay tax if I gift unlisted shares?
No tax applies at the time of gifting, but the recipient will pay capital gains tax when they sell the shares.

Q3. Is indexation benefit available for unlisted shares?
Yes, LTCG on unlisted shares gets indexation benefit, which helps reduce taxable gains.

Q4. How do I report unlisted shares in ITR?
You must disclose unlisted equity shares in your ITR under "Assets & Liabilities" (if applicable) and declare capital gains under "Capital Gains Schedule