CII for Unlisted Shares Query

Hi Experts,

I have a query related to Long Term Capital Gains on Sale of Equity Shares which is as follows : -

I have some Equity Shares of Unlisted Private Company which were purchased over a period from 2009 to 2016. Subsequetly this unlisted company got listed on Stock Exchange in January 2022. What will be the Cost of Acquisition in such a case considering Shares as Long Term Purchase : -

1. Cost of Purchase from 2009 to 2016 adjusted by Cost Inflation Index of 2017-18 (When Income Tax Law was changed to bring LTCG on Equity Shares into Tax Preview).

2. Cost of Purchase from 2009 to 2016 adjusted by Cost Inflation Index of 2021-22 (When Company became Listed from Unslisted Company)

3. Fair Market Value in January 2022 when company became listed.

4. Fair Market Value in January 2018 when Income Tax Law was stated in Point Number 1 was changed as above.

With Regards,
Manik

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?

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.
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:

Option	Explanation	Applicable?
1	Purchase cost indexed by CII of year of purchase	Yes, valid method
2	Purchase cost indexed by CII of 2021-22	No, CII indexing uses year of purchase, not year of listing
3	FMV as on date of listing (Jan 2022)	No, not allowed per CBDT clarifications
4	FMV as on 1 Feb 2018	Yes, allowed as grandfathering provision

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.