Key Takeaways
- Unlisted shares held for more than 24 months attract Long-Term Capital Gains (LTCG) tax at 20% with indexation.
- Shares held for 24 months or less attract Short-Term Capital Gains (STCG) tax, added to your income and taxed at your slab rate.
- Unlisted shares must be declared in your ITR (Income Tax Return) every year.
- No Securities Transaction Tax (STT) applies to unlisted share transactions.
- Stamp duty of 0.015% on purchase value applies to off-market transfers.
Tax on unlisted shares in India is governed by the Income Tax Act, 1961, and depends on your holding period. Gains from unlisted shares held for more than 24 months are taxed as Long-Term Capital Gains (LTCG) at 20% with indexation benefit, while gains from shares held for 24 months or less are treated as Short-Term Capital Gains (STCG) and taxed at your applicable income tax slab rate.
If you are investing in unlisted shares — or planning to — understanding the tax implications is non-negotiable. This guide breaks it all down clearly, so you know exactly what you owe and how to file.
Is Trading in Unlisted Shares Legal and Taxable in India?
Yes, trading in unlisted shares is fully legal in India. The Income Tax Department treats gains from unlisted shares as capital gains, just like gains from listed shares — with one key difference: the holding period for LTCG qualification is 24 months for unlisted shares vs 12 months for listed shares.
You are required to declare all unlisted share transactions in your ITR. Failure to do so can attract scrutiny, penalties, and interest.
Types of Capital Gains on Unlisted Shares
1. Short-Term Capital Gains (STCG) on Unlisted Shares
| Parameter | Details |
|---|---|
| Holding Period | 24 months or less |
| Tax Rate | Added to total income; taxed at applicable slab rate (5%, 20%, or 30%) |
| Indexation | Not applicable |
| ITR Form | ITR-2 or ITR-3 |
Example:
You bought 500 shares of an unlisted company in March 2024 at ₹200 per share (total cost: ₹1,00,000). You sold them in October 2025 at ₹350 per share (total proceeds: ₹1,75,000). Gain = ₹75,000. Since the holding period is less than 24 months, this is STCG. If you are in the 30% tax bracket, you pay ₹22,500 in tax.
2. Long-Term Capital Gains (LTCG) on Unlisted Shares
| Parameter | Details |
|---|---|
| Holding Period | More than 24 months |
| Tax Rate | 20% with indexation benefit |
| Indexation | Applicable (reduces your taxable gain) |
| ITR Form | ITR-2 or ITR-3 |
What is Indexation?
Indexation adjusts your purchase price for inflation using the Cost Inflation Index (CII) published by the Income Tax Department each year. This effectively reduces your taxable capital gain, lowering your tax liability.
Example:
You bought 1,000 shares in January 2022 at ₹100 per share (total cost: ₹1,00,000). CII for FY 2021-22 = 317. You sold them in March 2026 at ₹400 per share (total proceeds: ₹4,00,000). CII for FY 2025-26 = 363 (illustrative).
Indexed cost = ₹1,00,000 × (363/317) = ₹1,14,511
Taxable LTCG = ₹4,00,000 − ₹1,14,511 = ₹2,85,489
Tax at 20% = ₹57,098
Without indexation, you would have paid 20% on ₹3,00,000 = ₹60,000. Indexation saved you ₹2,902 in this example — and the benefit grows with longer holding periods.
Securities Transaction Tax (STT) — Does It Apply?
No. Securities Transaction Tax (STT) does not apply to transactions in the unlisted share market. STT is levied only on transactions executed on recognised stock exchanges (NSE, BSE). Since unlisted share trades happen off-market (OTC), no STT is charged.
Stamp Duty on Unlisted Share Transfers
When unlisted shares are transferred via off-market demat transfer, stamp duty of 0.015% of the transaction value is applicable under the Indian Stamp Act, 2019. This is collected by the depositories (NSDL/CDSL) at the time of the off-market transfer and is typically borne by the buyer.
Example:
You buy unlisted shares worth ₹2,00,000. Stamp duty = ₹2,00,000 × 0.015% = ₹30.
This is a negligible cost and is automatically deducted by your depository participant.
How to File ITR for Unlisted Share Income
All gains and losses from unlisted shares must be reported in your Income Tax Return. Here is what you need:
Step 1: Choose the Right ITR Form
- ITR-2: For individuals and HUFs with capital gains but no business income.
- ITR-3: For individuals and HUFs with business income in addition to capital gains.
Most unlisted share investors use ITR-2 unless they are also running a business.
Step 2: Report Under Schedule CG (Capital Gains)
- Under Short-Term Capital Gains (Section B4 – Other Assets) or
- Under Long-Term Capital Gains (Section B5 – Other than listed shares/securities)
Step 3: Mandatory Disclosure Under Schedule AL (Assets & Liabilities)
If your total income exceeds ₹50 lakh in a financial year, you must declare unlisted shares as assets in Schedule AL with:
- Opening balance (shares held as of April 1)
- Shares acquired during the year (with date, face value, purchase price per share)
- Shares sold during the year
- Closing balance (shares held as of March 31)
This declaration is mandatory regardless of whether you made a gain or loss.
Step 4: Report in Schedule 112A (if applicable)
For LTCG calculations, use Schedule 112A if filing ITR-2 or ITR-3.
What is the Cost of Acquisition for Unlisted Shares?
The cost of acquisition is the price at which you purchased the unlisted shares, including any brokerage or transaction charges paid to your dealer.
Note on Gifted or Inherited Shares:
- If you received unlisted shares as a gift, your cost of acquisition is the original price paid by the donor.
- If you inherited shares, the cost is the Fair Market Value (FMV) on the date of inheritance, as certified by a SEBI-registered Category I Merchant Banker.
Tax on Unlisted Shares After IPO (Lock-In Period)
When an unlisted company you have invested in goes public through an IPO, your shares get converted to listed shares in your demat account. Under SEBI regulations, there is a mandatory lock-in period of 6 months before you can sell these shares on the exchange.
Once you sell them after listing:
- Holding period for LTCG: Unlike general unlisted shares (24-month rule), post-listing sales follow the listed share rule: 12 months for LTCG.
- Tax rate: LTCG on listed shares is taxed at 10% without indexation (for gains above ₹1 lakh).
- STT applies once the shares are listed and sold on the exchange.
This is an important nuance. If you hold shares in a company that eventually lists, the tax treatment changes from "unlisted" to "listed" at the point of listing.
Tax Loss Harvesting for Unlisted Shares
Capital losses on unlisted shares can be used to offset capital gains, subject to the following rules:
| Loss Type | Can Be Set Off Against |
|---|---|
| Short-Term Capital Loss | Both STCG and LTCG |
| Long-Term Capital Loss | Only LTCG (not STCG) |
Losses can be carried forward for 8 assessment years, provided you file your ITR on time.
Common Tax Mistakes Investors Make with Unlisted Shares
- Not declaring unlisted shares in ITR — This is one of the most common and costly mistakes. The IT Department is increasingly scrutinising off-market transactions.
- Treating all gains as STCG — Many investors are unaware of the 24-month threshold for LTCG and overpay tax.
- Ignoring indexation — Not applying indexation for LTCG means paying more tax than required.
- Missing the lock-in period rule — Selling within 6 months after listing is not just a SEBI violation; it affects your tax calculation too.
- Not documenting purchase price — Always keep records of your purchase confirmations, bank transfers, and demat transfer slips.
Summary Tax Table: Unlisted Shares in India (FY 2025-26)
| Scenario | Holding Period | Tax Rate | Indexation | STT |
|---|---|---|---|---|
| Short-Term Gain | ≤ 24 months | Slab rate | No | No |
| Long-Term Gain | > 24 months | 20% | Yes | No |
| Post-IPO listed (STCG) | ≤ 12 months after listing | Slab rate | No | Yes |
| Post-IPO listed (LTCG) | > 12 months after listing | 10% | No | Yes |
| Capital Loss (ST) | Any | Offset STCG + LTCG | — | — |
| Capital Loss (LT) | Any | Offset LTCG only | — | — |
Need Help with Unlisted Share Investments?
Arms Securities has been guiding Indian investors in unlisted, delisted, and pre-IPO shares since 1990. While we strongly recommend consulting a Chartered Accountant (CA) for personalised tax advice, our team can help you understand the investment process and connect you with the right shares for your portfolio.
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Frequently Asked Questions (FAQs) — Tax on Unlisted Shares
Q1. Do I need to pay tax every year on unlisted shares even if I haven't sold them?
No. Capital gains tax is triggered only when you sell the shares. Simply holding unlisted shares in your demat account does not attract any annual tax. However, you must disclose your holdings in Schedule AL of your ITR if your income exceeds ₹50 lakh.
Q2. Can NRIs invest in unlisted shares in India and how are they taxed?
Yes, NRIs can invest in unlisted shares in India under the Foreign Exchange Management Act (FEMA). NRIs are also subject to LTCG (20% with indexation) and STCG (30% without indexation benefit for certain cases). TDS may apply at the time of repatriation. Consult a CA familiar with NRI taxation before investing.
Q3. Is there any tax exemption on LTCG from unlisted shares?
There is no Section 10(38) exemption (which applied to listed shares until FY 2017-18) for unlisted shares. However, LTCG of up to ₹1 lakh is exempt for listed shares — not unlisted. Unlisted share LTCG is fully taxable at 20% with indexation. Section 54F provides relief if the gains are reinvested in a residential property, subject to conditions.
Q4. How do I determine the Fair Market Value (FMV) of unlisted shares for tax purposes?
Under Rule 11UA of the Income Tax Rules, the FMV of unlisted shares for gift tax (Section 56) purposes is calculated as: FMV = (A+B+C+D−L) / (PE) where A = book value of assets, B = market value of jewellery, C = FMV of shares held, D = FMV of other assets, L = book value of liabilities, PE = total paid-up equity. For capital gains, use your actual purchase price, not FMV.
Q5. What if I cannot find my original purchase price for unlisted shares?
If you received shares as an Employee Stock Option (ESOP), the purchase price is the exercise price as per your ESOP grant letter. If inherited, use the FMV on date of death as certified by a SEBI Category I Merchant Banker. Always maintain proper records — bank transfer proofs, DIS slips, and transaction confirmations from your dealer.
Conclusion
Tax on unlisted shares in India is manageable once you understand the two key rules: 24-month holding period for LTCG, and the 20% tax rate with indexation. The bigger risk is not understanding these rules at all — which leads to either overpaying or underreporting, both of which are costly.
If you are investing in unlisted shares, work with a qualified CA for tax filing and with a trusted dealer like Arms Securities for your investment decisions. Together, they ensure you maximise returns and stay fully compliant.
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