CII for Unlisted Shares Query

Hi Manik,

This is an interesting and important query regarding the Cost of Acquisition (COA) for unlisted shares that later got listed.

Key Points:

• The shares were bought when the company was unlisted (2009-2016).

• The company got listed in January 2022.

• You are asking the applicable cost of acquisition for Long-Term Capital Gains (LTCG) calculation on sale of such shares.

What does the Income Tax law say?

1. Before Listing:

   • Shares in an unlisted company are treated differently than listed shares.

   • Cost of acquisition for LTCG is generally the actual purchase price indexed with CII (Cost Inflation Index) for the year of purchase.

   • Alternatively, for shares acquired before 1 Feb 2018, FMV as on 1 Feb 2018 can be taken as cost of acquisition under section 49(1) as introduced by Finance Act 2018 to grandfather gains.

2. After Listing:

   • Once the company becomes listed, the shares become listed shares for tax purposes.

   • The cost of acquisition continues to be the cost of acquisition of unlisted shares before listing, i.e., the original cost indexed or the FMV as on 1 Feb 2018, whichever is beneficial.

   • The date of listing does NOT reset the cost of acquisition to FMV on the date of listing.

Based on this, your options are:

So, the correct approach is:

• You can take either:

  • Indexed cost of acquisition based on the purchase year, OR

  • Fair Market Value (FMV) as on 1 Feb 2018 (whichever is higher).

• The fact that company got listed in 2022 does not allow you to take FMV as on listing date.

Reference:

• CBDT Circular No. 4/2018 dated 21 March 2018 clarifies this.

• Section 49(1), 112A and relevant case laws.

Summary: