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# Is Buying Unlisted Shares Legal in India?
Yes — buying unlisted shares is fully legal in India. The transaction is governed by existing law — the Companies Act 2013, SEBI depository regulations, and the Income Tax Act — and there is no restriction on a private individual purchasing equity in another private company through a secondary sale.
What creates confusion is that the unlisted market is *less regulated* than the stock exchange — not *illegal*. Understanding the difference matters.
Disclaimer: This article is for educational purposes only and is not legal or investment advice. Tax and regulatory rules change — consult a practising CA or legal advisor for your specific situation.
The Legal Framework for Unlisted Shares in India
### Companies Act 2013 Section 2(68) of the Companies Act defines a "private company" as one that restricts the transfer of shares. However, this restriction applies to *unsolicited* transfers to the public — it does not prevent two willing parties from privately agreeing to a share sale. A secondary sale between a seller who holds shares and a buyer who wants them is a straightforward private contract.
### SEBI Depository Regulations SEBI regulates CDSL and NSDL — India's two central depositories. Every unlisted share has an ISIN registered with one of these depositories. The actual settlement of an unlisted share trade — the DIS (Delivery Instruction Slip) that moves shares from the seller's demat to the buyer's demat — happens inside CDSL or NSDL. This makes the settlement layer fully regulated.
### Income Tax Act The Income Tax Act explicitly provides for the taxation of gains from unlisted equity:
- LTCG (held > 24 months): 20% with indexation
- STCG (held ≤ 24 months): slab rate
The fact that there is a defined tax treatment for unlisted shares confirms that the government recognises these transactions as legitimate.
What Is NOT Legal in the Unlisted Share Space
While the trade itself is legal, certain practices around it are not:
- Selling shares you do not own — fraud under IPC Section 420 and the Companies Act
- Misrepresenting the company's financials — fraudulent misrepresentation
- Collecting money without delivering shares — criminal breach of trust
- Operating as an investment adviser without SEBI registration — violates SEBI (Investment Advisers) Regulations 2013
- Pool accounts — collecting buyer funds into a shared account before passing to sellers is not legal under SEBI's client-fund rules
These practices are common in informal WhatsApp-based grey-market networks. They are what makes the grey market *risky*, not the purchase of unlisted shares itself.
How a Legal Platform Differs From a Grey-Market Dealer
| Feature | Legal Platform (e.g. Polemarch) | Grey-Market Dealer | |---|---|---| | Settlement | Shares move to buyer's own demat via DIS | Often a paper certificate or a promise | | KYC | Full PAN + Aadhaar + demat verification | Typically none | | Documentation | Invoice, transfer record, ISIN | WhatsApp screenshots at best | | Legal recourse | Full paper trail | None | | Tax reporting | Demat statement is documentary proof | No proof for ITR |
What SEBI Says About Unlisted Share Platforms
SEBI has issued circulars warning investors about unregulated entities that offer "guaranteed returns" on unlisted shares or operate pool accounts. These circulars do not ban unlisted share trading — they warn against fraud. SEBI's consistent message: use platforms that deliver shares to your demat account, maintain KYC, and do not pool funds.
Practical Checklist Before Buying
- 1Confirm the ISIN — search it on the CDSL or NSDL portal to verify the company is real
- 2Insist on demat delivery — shares should land in your CDSL/NSDL account, not a paper certificate
- 3Check the platform's KYC process — if no PAN/Aadhaar is required, walk away
- 4Get a written invoice — you will need it for ITR and future capital gains calculation
- 5Verify the seller's demat — a legitimate seller provides their BO ID (demat account number) before the transfer
Summary
Buying unlisted shares is legal in India. The transaction happens inside SEBI-regulated depositories, is taxed under the Income Tax Act, and is documented under the Companies Act. The risk is not legality — it is the risk of dealing with unregulated, undocumented grey-market operators. A demat-settled, KYC-verified platform eliminates that operational risk while keeping the transaction fully lawful.
*Published by the Polemarch editorial team for informational purposes only. Not legal advice.*