Capital Gains Tax on Unlisted Shares in India — A Complete Guide

# Capital Gains Tax on Unlisted Shares in India — A Complete Guide

Capital gains tax on unlisted shares follows different rules from listed equity. The holding period is longer, the exemption thresholds are different, and the indexation mechanics are more complex. This guide covers everything from first principles.

Disclaimer: Tax rules are subject to change. Budget 2024 introduced significant changes to capital gains taxation across asset classes. This article reflects general principles — verify current rates and rules with a chartered accountant before filing.

Short-Term vs Long-Term: The 24-Month Rule

The first question is whether your gain is short-term or long-term. This determines the applicable tax rate.

For unlisted shares:

• Holding period ≤ 24 months: Short-Term Capital Gain (STCG)
• Holding period > 24 months: Long-Term Capital Gain (LTCG)

The holding period clock starts from the **date shares are credited to your demat account** — not the date you paid for them. For unlisted shares purchased through Polemarch, the settlement typically completes within T+2 working days.

This is a critical difference from listed equity, where the LTCG threshold is 12 months.

Tax Rates

### Short-Term Capital Gains (STCG) STCG on unlisted shares is added to your total income and taxed at your income tax slab rate.

If you are in the 30% tax bracket, STCG is taxed at 30% + surcharge + 4% cess.

### Long-Term Capital Gains (LTCG) LTCG on unlisted shares is taxed at 20% under Section 112, plus:

• Surcharge: 10% (income ₹50L–₹1cr), 15% (₹1cr+)
• Health and education cess: 4%

Effective rate: approximately 20.8% to 23.9% depending on your surcharge slab.

Key difference from listed equity: There is no ₹1 lakh exemption for unlisted share LTCG (that applies only to listed equity under Section 112A). The full gain is taxable.

Note: Budget 2024 modified LTCG and STCG rates across asset classes. Confirm the current rates applicable to your transaction year with a CA.

Indexation Benefit

For LTCG, you may be able to claim an indexation benefit that reduces your taxable gain by accounting for inflation. The indexed cost of acquisition is:

Indexed Cost = Original Cost × (CII of Sale Year ÷ CII of Purchase Year)

This can meaningfully reduce your LTCG. See our article on How to Calculate Indexed Cost of Acquisition for worked examples.

Calculating Capital Gains: Step by Step

Step 1: Determine holding period → STCG or LTCG

Step 2: Calculate gross gain

• Sale consideration: ₹X per share × shares sold
• Minus: Cost of acquisition (and indexed cost for LTCG)
• Minus: Transfer expenses (Polemarch fee, stamp duty)

Step 3: Determine applicable rate

Step 4: Calculate tax

• STCG: Add to total income, apply slab rate
• LTCG: Apply 20% to the net gain

Step 5: Apply advance tax schedule if gain is realised mid-year

Setting Off Losses

If you make a loss on unlisted shares, the set-off rules are:

| Loss Type | Can Be Set Off Against | |---|---| | STCL (short-term) | Any STCG or LTCG (any asset) | | LTCL (long-term) | Only LTCG from any asset |

Unabsorbed losses can be carried forward for 8 assessment years — but only if you file your ITR on time. Missing the due date forfeits your carry-forward right.

Advance Tax on Capital Gains

If you sell unlisted shares mid-year and realise a significant gain, you are required to pay advance tax:

• 15 June: 15% of estimated annual tax
• 15 September: 45% cumulative
• 15 December: 75% cumulative
• 15 March: 100%

Interest under Section 234B/234C is charged on shortfalls. For a large one-time sale (₹20–50 lakh gain), the interest penalty can be ₹20,000–₹1,00,000 if advance tax is ignored.

Practical tip: When you receive the sale proceeds from Polemarch, set aside 20–25% immediately for tax.

Ways to Reduce Your Tax Bill (Legally)

1. 1Hold for > 24 months: Converts taxed-at-slab STCG into 20% LTCG
2. 2Claim indexation: Reduces the LTCG base
3. 3Set off losses: Harvest any other capital losses in the same year
4. 4Tax-loss harvesting: If you have unrealised losses on other investments, realise them in the same year as your unlisted share gain to offset
5. 5Timing of sale: Selling in a year where your other income is lower reduces the surcharge applicable to LTCG

*Published by the Polemarch editorial team. Not tax advice — consult a chartered accountant.*