shares of private limited company

The rate of tax on gain on sale of shares of private limited company shall be determined by the period of holding. As per section 2(42A) as amended by the Finance Act, 2016, where unlisted shares are held for more than 24 months, they shall be treated as long term capital assets and gain on their sale shall be long term capital gains. As per section 112, the gains shall be taxed at 20% after indexation. Exemption on share of shares under section 10(38) is only where they are sold on stock exchange after payment of securities transaction tax.

Income Tax laws in India specify that immovable property held for more than 36 months – or 3 years – before sale, fall under long-term capital gains. For stocks, shares and bonds, this period is more than 12 months instead of 36 months. Unlisted securities, on the other hand, will be considered as long-term capital gains only if sold after 36 months.

Rita Mehta bought shares of a company that is not listed on any stock exchange in India, in January 2013, and sold them in March 2016. This means she held the shares for 38 months, and hence her income from sale of the shares falls under long-term capital gains. If she had bought the shares of a BSE-traded stock in January 2015 and sold them in February 2016, after 13 months, they would still be considered long-term capital gains.