Taxation of unlisted shares & biggest catch on disclosure



Quick Summary
Investing in unlisted shares before a company goes public is becoming increasingly popular. This article explains how capital gains tax applies when you sell these shares, both before and after the company is listed on a stock exchange. It details the tax rates for short-term and long-term capital gains, considering factors like the holding period and whether indexation is applied.

TAXATION ON UNLISTED SHARES & BIGGEST CATCH ON SALE

Nowadays there is a boom in equity transactions, investment etc., Indian investors have gone beyond traditional gold, silver, real estate to equities, mutual funds and few have further seen to be investing in the public companies which are about to be listed (Shares brought in unlisted market).

Today we are going to understand the Taxation of Shares of public company purchased/acquired before listing.

Capital Gains Tax is levied on the transfer of capital asset, and therefore capital gain tax would be applicable on sale of share, now there are 2 scenarios

  1. Unlisted share is sold before the company gets listed (Off Market Share Sale)
  2. Unlisted Share is sold post the company gets listed on any recognized stock exchange (Regular Sale)
Taxation of Unlisted Shares: Your Guide to Capital Gains

I. When the Unlisted Share (UL Share) is sold off the market (i.e. before a company gets listed)

  • STCG - sold on or before 24 months of acquisition
  • LTCG - Sold after 24 months of acquisition

Taxation

  • STCG: It would be taxed on slab rate basis or added to your total income and taxed accordingly (Since not covered under 111A)
  • LTCG: For Resident it would be 20%(With Indexation) or 10%(without indexation) and for non-resident, it would be 10%(without indexation)
 

II. Purchase UL SHARE and Sold as Listed Share

First we need to identify whether It is STCG or LTCG and then process for Taxation of the same

  • STCG in case of listed equity - If sold within 12 months of purchase.
  • LTCG - If sold post 12 months of purchase (Obviously)
 

Taxation

  • STCG - 15% (Since STT is paid on transaction according to the condition specified under 111A)
  • LTCG - 20% (With Indexation) or 10%(Without Indexation) for both resident and non-resident

Exemption limit - Nil

Why no Exemption?

Section 112A is not attracted on this transaction because according to the provision STT needs to be paid on both acquisition as well as sale, however since it is purchased as unlisted, STT is not paid and hence 112 is charged and not 112A.




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