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Capital Gain on non listed company share

Raghav Kapoor (intern) (51 Points)

03 February 2011

Hello everyone ...

Can any one let me know weather tax is applicable on transfer of non-listed company's share and at what rate is applicable on such gain.??

Thanks in Advance

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17 Replies

Pankaj Arora (Learner) (3134 Points)
Replied 03 February 2011

No tax is applicable on transfer on non listed co. shares and at the time of selling shares will be tax free.

Raghav Kapoor (intern) (51 Points)
Replied 03 February 2011

Can i ask u the basis for ur ans.

i think Capital gain tax will b applicable and will be treated as normal income. i am not sure so luking forward for further clarification

Yogi Saraf (Audits & Taxation) (86 Points)
Replied 03 February 2011

cap. gains would be leviable if the co. is non-listed

in case of STCG, as per the rates applicable to the seller assessee in the normal course (company, indiviual, firm etc)

in case of LTCG, either 10% on the gain amount and in case indexation is taken then 20% of the gain amt, whichever is more beneficial to the assessee.

CA Nikhil Agarwal (Professional) (26 Points)
Replied 03 February 2011

If the non listed Shares have been acquired(without paying STT) and held for a period more than 1 yr, then long term capital gain tax will be charged @ 20% and if held for less than 1 yr, then short term capital gain tax will be leived. If STT has been paid then long term capital asset will attract no capital gain.

CA. Anubhav Jaggi (CA) (104 Points)
Replied 03 February 2011

Can any one let me know weather tax is applicable on transfer of non-listed company's share and at what rate is applicable on such gain.??

If any share is listed on stock exchange and STT is paid at the time of sale of such share, then capital gain is exempt if it is LTCG & tax @ 15% if it is STCG.

In case of non-listed shares, tax is leviable u/s 112 @ 20% after indexation.

ankit kumar aggarwal (Practice) (21 Points)
Replied 03 February 2011

In case of listed Share

IF equity share covered by STT . LTCG will be exempt and STCG will be charged at the rate 15% under section 111A.

If equity share not covered by STT . LTCG will be charged at 20% and STCG will be charged at Normal rate

In case of non listed share

No question of STT so, t ax will be charge as follow

LTCG 20% and STCG : Normal rate

Rajeev Kumar singh (Article) (36 Points)
Replied 03 February 2011

I am totally agree with Anubhav

Raghav Kapoor (intern) (51 Points)
Replied 04 February 2011

Thank You every one....

Mohit Agrawal (Practicing Chartered Accountant ) (55 Points)
Replied 04 February 2011

I agree with Ankit Kumar........

rvsekar2000 (212 Points)
Replied 04 February 2011

Dear All ,

I have done further research on the subject. This is regards to application of long-term or short-term capital gain tax applicable to an unlisted or a private limited Indian company shares to be transferred or purchased from a Non –resident or a foreign company .

Long –Term Capital Gain Tax on shares of private limited company

It is to be observed that shares of unlisted companies if it is held by more than 3 years , then it will be considered as long term one and if it is disposed before three years, then it will be considered as short-term gains.

Nature of Asset	Short Term Capital Asset	Long Term Capital Asset
(i) Shares in a company or any other security listed in a recognised stock exchange in India or a unit of a Unit Trust of India or a unit of a mutual fund specified under section 10(23D).	Held for not more than 12 months.	Held for more than 12 months.
(ii) Assets other than assets mentioned in (i) above.	Held for not more than 36 months.	Held for more than 36 months.

Source : Karnataka IT Department Web Site

In case of listed company, if the shares are sold through recognised stock exchange, then no long –term capital gain is attracted as it will be subject Security Transaction Tax (STT). However, if the shares of the listed company are sold outside the stock exchange, then long-term capital gain tax will be applicable. In such cases only, indexation can be applied.

For unlisted companies, no indexation is applicable. The flat rate income tax on long –term capital gain tax will be 20% plus surcharge.

The following provisions will throw more light on the subject:

Non Resident Unitholders
Under section 115 E of the Act, in case of income of non resident Indians by way of long term capital gains, in respect of units is chargeable at the rate of 20% plus surcharge, if applicable. Chapter XIIA exclusively deals with taxation related to Non-resident Indians. Under section 115 D of the Income Tax Act, a non-resident Indian cannot avail the benefit of indexation.

In the alternative the capital gains tax may be computed by the non residents under section 112, if it is more beneficial to them. Under Section 112 of the Act, long term capital gains are taxed at the rate of tax @ 20% plus surcharge. The benefit of indexation is also available to the non residents under section 48 of the Income Tax Act, 1961. Gains on short term capital asset are taxed as regular income.

Income –Tax on capital gains

Long Term Capital Gains

As per Part II of the First Schedule to the Finance Act 2008 {Clause 1 (b) (i) (D)}, the Mutual Fund is liable to deduct tax @ 20% on long term capital gain.

(iii) Other than a Domestic Company:

Long Term Capital Gains
As per Part II of the First Schedule to the Finance Act 2008 {Clause 2 (b) (viii)}, the Mutual Fund is liable to deduct tax @ 20% on long term capital gains.

https://www.utimf.com/customer_services/customer_connect/tax_centre.aspx

Applying the above provisions , the following conclusion can be arrived at as there are lot of ambiguity in the Income Tax Act about the sale of unlisted company’s shares attracting either long-term or short-term capital gain tax:

1.No indexation is applicable for unlisted shares or shares of a private limited company. Please note that indexation is only a viable option for the listed company shares and an assessee may select to avail indexation or he can pay taxes even with out indexation.

2. For long term capital gains of a unlisted or a private limited , the tax rate is applicable will be 20% + 10% surcharge..

R.V.Seckar

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https://rvseckarcompanylaw.blogspot.com/

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Raghav Kapoor (intern) (51 Points)
Replied 04 February 2011

thank u sir valuable information....thnax...

Akash Rustagi (Manager Accounts) (22 Points)
Replied 04 February 2011

My view is same as mentioned by Mr Ankit Aggarwal , It is correct

tapan (Partner) (21 Points)
Replied 04 February 2011

if the shares have been held for a period less than 1 year, then the gain will be taxed as STCG under normal tax provisions and as per the tax slab under which the assessee falls. if the shares have been held for a period more than 1 year, then the tax would be 10% without indexation or 20% with indexation whichever is less.

please note STT clause would not be applicable in the case of non listed companies since these transactions are NOT ROUTED THROUGH STOCK EXCHANGE..