On this page
# TDS on Unlisted Share Sales in India — Does It Apply?
One of the most common questions from investors selling unlisted shares: "Will TDS be deducted?" The short answer: for most resident-to-resident sales, no. But there are exceptions — particularly for NRI sellers and company buybacks — that every investor should understand.
Disclaimer: TDS rules are complex and fact-specific. This article covers general principles. Consult a chartered accountant for your specific situation.
The General Rule: No TDS Between Residents
When two Indian residents transact in unlisted shares — a buyer and a seller, both residents — the Income Tax Act does not require the buyer to deduct TDS. This is because capital gains are assessed on the seller through the regular advance tax and self-assessment route, not through source deduction.
What this means practically: If you sell unlisted shares through Polemarch to another retail investor, no TDS is deducted. You receive the full sale consideration. You are responsible for paying advance tax on your capital gains (if any) during the year.
Exception 1: Buyer is a Company — Section 194Q
Section 194Q (introduced in Budget 2021) requires a buyer to deduct TDS at 0.1% when:
- The buyer is a company or a partnership firm
- The aggregate purchase value from a single seller exceeds ₹50 lakh in a financial year
For most retail unlisted share transactions (ticket size ₹5,000–₹25 lakh), this threshold is not crossed. But for institutional or bulk buyers, this may apply.
Exception 2: Seller is an NRI — Section 195
This is the most important exception. When an Indian resident buys unlisted shares from a Non-Resident Indian (NRI), TDS applies under Section 195:
| Gain Type | TDS Rate (approximate, including surcharge + cess) | |---|---| | LTCG (held > 24 months) | ~20–23% depending on surcharge slab | | STCG (held ≤ 24 months) | Slab rate (15–43% depending on income) |
The TDS is calculated on the capital gains portion — not the entire sale consideration. The NRI seller's cost of acquisition is subtracted from the sale price to arrive at the gain.
For NRI sellers: You can apply to the Assessing Officer for a lower deduction certificate (Form 13) if your actual tax liability is lower than the TDS rate. This is advisable if you have acquisition costs, losses to offset, or indexation to claim.
For resident buyers purchasing from NRIs: You are required to deduct TDS, deposit it using Form 26Q/27Q, and file the TDS return. Failure to do so makes you an "assessee in default" under Section 201 and can attract interest and penalties.
Exception 3: Company Buyback
When a company buys back its own shares (including ESOP buybacks), the treatment depends on:
- Whether the shares were received as sweat equity, ESOPs, or purchased in the secondary market
- Whether the company is a listed or unlisted entity
For unlisted company buybacks, the tax at the company level changed with the Finance Act 2024 — consult a CA for the current treatment.
From the employee-seller's perspective, proceeds are typically treated as capital gains where the shares were acquired by exercising ESOPs (cost = exercise price). TDS is sometimes deducted by the company in buyback scenarios.
Advance Tax: Your Responsibility as a Seller
Even where TDS doesn't apply, you must pay advance tax on capital gains:
- If your estimated tax liability for the year exceeds ₹10,000, advance tax is due in four instalments (June 15, September 15, December 15, March 15)
- Interest under Section 234B/234C applies for shortfall or late payment
Practical tip: When you sell unlisted shares on Polemarch, note the gain immediately. If the gain pushes your estimated annual tax liability above ₹10,000, pay the next advance tax instalment accordingly.
Summary Table
| Scenario | TDS Applicable? | Section | |---|---|---| | Resident sells to resident individual | No | — | | Resident buys from another resident (>₹50L/year) | Yes, at 0.1% | 194Q | | NRI sells to resident | Yes, on capital gains | 195 | | Company buyback from employee | Sometimes | Consult CA |
*Published by the Polemarch editorial team. Not tax advice.*