How unlisted shares are taxed in India

Surcharge, where your income attracts it, and 4% health and education cess are added on top of every rate above. Surcharge on long-term capital gains is capped at 15%.

Everything starts with how long you held the shares. For shares that are not listed on a recognised stock exchange, a holding of more than 24 months makes the gain long-term. Sell at 24 months or earlier and it is short-term.

The clock starts on the date the shares were acquired, which for a secondary purchase is the date they were credited to your demat account against payment. For bonus shares it is the allotment date of the bonus; for rights shares, the allotment date of the rights.

A rule remembered from listed equity, where 12 months is enough, is the wrong rule here. It is the single most common mistake we see when an unlisted holder plans a sale.

Long-term capital gains

Long-term gains on unlisted shares are taxed at 12.5% without indexation for any transfer on or after 23 July 2024. Before that date the rate was 20% with indexation; that option is no longer available for shares. Unlike listed equity, there is no ₹1.25 lakh tax-free allowance: the whole long-term gain is taxable.

Short-term capital gains

Short-term gains are added to the rest of your income and taxed at your slab rate. For an investor in the top bracket that can be well above the long-term rate, which is why the 24-month line matters so much to timing.

The gain is the sale consideration minus the cost of acquisition and the costs of the transfer itself.

• Cost of acquisition is what you paid for the shares. Stamp duty paid on the purchase forms part of it.
• Transfer expenses that are directly tied to the sale, such as a brokerage or facilitation fee you bear, reduce the gain. Demat maintenance charges do not.
• Bonus shares carry a cost of nil, so the whole sale price is gain.
• Shares received on a split share the original cost in proportion; the holding period carries over from the original shares.
• ESOP shares carry a cost equal to the fair market value on the exercise date, not the exercise price you paid (see below).

The gains calculator does this arithmetic and shows which rate it applied.

Many unlisted shares are bought in anticipation of an IPO. Three things are worth knowing before that happens.

• The holding period does not restart. It runs from the date you originally bought the shares.
• A sale on the exchange is taxed as listed equity. Once listed and sold through the exchange with STT paid, long-term means more than 12 months, long-term gains above ₹1.25 lakh a year are taxed at 12.5%, and short-term gains at 20%.
• Lock-in. Pre-IPO shares held by investors other than promoters are normally locked in for six months from the date of allotment in the IPO, so in most cases you cannot sell on listing day. Your demat statement shows the lock-in end date.

Shares sold in the offer for sale that forms part of an IPO also bear STT, so such a sale is generally taxed on the listed-equity terms above.

Employee stock options are taxed at two separate points.

1. On exercise, the difference between the fair market value of the shares on the exercise date and the exercise price you pay is a perquisite, taxed as salary. Your employer deducts tax at source through payroll.
2. On sale, the capital gain is the sale price minus that fair market value on the exercise date. The holding period runs from the date the shares were allotted to you, and the 24-month test applies while the company is unlisted.

Employees of an eligible start-up recognised for the purpose can defer the tax on exercise until the earliest of 48 months from the end of the relevant assessment year, the date the shares are sold, or the date they leave the company.

Many ESOP plans also restrict who you can sell to. Read your plan before discussing a price; our ESOP liquidity page lists what a sale needs.

Unlisted shares have no exchange price, so the tax law uses a computed fair market value under Rule 11UA instead. Two provisions use it.

• For the buyer (section 56(2)(x)): if you buy unquoted shares for less than their fair market value and the shortfall is more than ₹50,000, the shortfall is taxed in your hands as income from other sources.
• For the seller (section 50CA): if you sell unquoted shares for less than their fair market value, the fair market value is treated as your sale price when computing the gain.

In practice this matters for gifts and for transfers between family or friends at a token price. An arm's-length sale near the prevailing market price is rarely affected, but keep the price confirmation and payment record for every transaction.

Stamp duty of 0.015% of the consideration applies to a transfer of shares in demat form and is borne by the buyer. For an off-market transfer it is collected through the depository. On a ₹5 lakh purchase it comes to ₹75.

There is no securities transaction tax on an off-market transfer. Your depository participant may charge a per-instruction fee for the delivery instruction or credit; those charges vary by DP.

• A short-term capital loss can be set off against both short-term and long-term capital gains.
• A long-term capital loss can be set off only against long-term capital gains.
• Capital losses cannot be set off against salary or other income. Unused losses can be carried forward for eight assessment years, provided the return for the year of the loss was filed on time.

Capital gains are reported in ITR-2 or ITR-3, not ITR-1. If you held unlisted equity shares at any point in the financial year, ITR-2 and ITR-3 also ask for a schedule of those holdings: company name, PAN of the company, opening and closing quantities, and the cost of shares bought or sold during the year. This applies even in a year with no sale.

Keep your contract note or price confirmation, the payment proof from your bank and your demat transaction statement. Together they establish the date and cost of acquisition, which is what the holding-period test and the gain both depend on.

Non-resident sellers face tax deducted at source by the buyer on the gain. If you are an NRI, raise it with us before a price is agreed so the deduction is built into the settlement.