Detailed Guide To Calculate Capital Gains on Unlisted Shares

Almost every asset you own is a capital asset; it can be an investment, such as stock, bond, real estate or something you purchased for your personal use, such as furniture, electronic gadget, etc. Considering this, the capital gain is a term that refers to the increment in the value of a capital asset whenever it is sold.

Consider the original amount you paid for an asset as the cost price and the increased value you sold the said asset as a selling price. When the selling price is higher than the cost price, you make a significant profit; that profit is capital gains.  

Regarding capital gains, investors tend to calculate capital gains to decide whether to invest in a company’s shares. Nevertheless, calculating capital for listed shares is much simpler than for unlisted shares. Before moving on to calculations, let’s first discuss the different types of capital gains on unlisted shares for a thorough understanding.

Types of Capital Gain on Unlisted Shares

As aforementioned, capital gains refer to any profit made when you sell your capital asset. These gains are generally applicable to listed and pre-IPO stocks. Since the pre-IPO stocks are not listed on any recognised stock exchange, the Securities Transaction Tax does not apply to them. Speaking of capital gains on unlisted shares, they can be classified into two categories as mentioned below;

Long-term capital gain

Long-term capital gains tax calculation is relatively simple. If you invest in unlisted companies and hold the pre-IPO shares for more than 24 months, your gains will be taxed at 20% after indexation. If you are a non-Indian resident, the tax will be 10% without indexation. 

Short-term capital gain

Unlike long-term capital gains tax calculation, there is no standard percentage for short term capital gains tax. When you buy unlisted shares online and hold the pre-IPO shares for 24 months or less, your short term capital gains tax will be calculated based on the slab rate. 

Compute Tax On Capital Gain On Unlisted Shares That Are Sold After Public Listing

Coming to the calculation of unlisted shares, taxation is a bit complex as compared to the listed share price. If you are wondering how the capital gains formula uses 15% as a taxation amount for equities sold within one year, in case you hold the shares for more than a year and your profits range over ₹ 1 lakh, the capital gains calculator uses 10% taxation. 

Moving on to the capital gains calculator for unlisted shares sold after the company gets listed, the indexation benefits are lost. Simply put, your capital gains formula will be the same as for purchase-and-sale of listed shares. The long-term capital gains tax is at 10% after the investor makes a threshold of ₹ 1 lakh per financial year, and for short-term capital gains tax, the capital gains formula uses 15 %. 

For instance, if you buy unlisted shares of Lava International Limited and it gets listed in 2023. Now, if you purchased the Lava International Limited unlisted shares in 2018 at ₹ 100 and chose to sell your shares in 2024, the cost price would be inflated only up to 2022. 

Calculate Tax On Gifted Unlisted Shares

When it comes to gifts, they do not fall under long or short-term capital gains. Nevertheless, when you decide to sell your gift, the capital gains then made are eligible for taxation and will be taxed similarly to any other capital asset. The capital gain formula will remain the same for the person who decides to sell their unlisted shares. Moreover, you must remember that the capital gains calculator uses the asset’s original price as the cost price. 

Taxation Applicable On Unlisted ESOPs

When it comes to ESOPs (Employee Stock option plans) of unlisted shares, they are taxed in two categories; 

During the exercise of option – The chartered accountant calculates the Fair Market Value (FMV), and the difference between FMV and the exercise price is a ‘perquisite’ for taxation, where tax is calculated at the slab rate. 

During the sale of exercised shares – For this category, the difference between the sale price and FMV, as seen on the exercise date, is the capital gain or loss on that pre-IPO stock. However, the capital gain formula is the same for the above category. 

Tax Filing Compliances for Unlisted Shares

As per the Income Tax Act, every investor is liable to declare the income gained after the sale of unlisted shares for companies registered under the Companies Act 2013. So, compliance with on-time tax filing and returns levied on investors. Under the Income Tax Return, the ITR form is a section of ‘Part A – General’ where the income earned from long-term and short-term capital gain will be disclosed. 

Tax filers can use the form of ITR 2 & ITR 3 for the unlisted shares, depending on their income shares and filing requirements. You can reach out to a tax expert or chartered accountant to understand the tax filing process and its other regulations. Investors should disclose their income earned through the sale of unlisted shares to avoid penalties.

Buy Highly Profitable Unlisted Shares In India

From the capital gains formula for listed and unlisted shares, it can be easily deduced that it is best to invest in unlisted companies. If you are looking for a platform to buy unlisted shares, halt your search with Stockify. We are a leading unlisted shares broker in India, offering true unlisted share prices. Our experts are also available to assist you with all the necessary information, which is also available on our share pages. Based on the market fluctuation, we update our prices regularly to offer you the most accurate unlisted shares price.

Table of Contents

Do you know your tax calculations or capital gains on unlisted shares? Check here how to deduce highly accurate capital gains.

Share

Leave a Reply

Your email address will not be published. Required fields are marked *

Join Stockify's WhatsApp Community
Stockify Fintech Pvt. Ltd.
Stockify Fintech Pvt. Ltd.

Register Your Interest

stockify-fintech-1.png
stockify-fintech-1.png
Provide Email And Download!
stockify-fintech-1.png
Register For Downloads
Stockify Fintech Pvt. Ltd

Provide Email And Download!

Stockify Fintech Pvt. Ltd.

Haven't found what you're looking for?
Speak to an expert.
Book an appointment by clicking on the link below.

Piyush Jhunjhunwala
Piyush Jhunjhunwala
CA, CPA, Ex. PepsiCo, Reckitt, Coty
CEO & Founder
Dubai, UAE.
Rahul Khatuwala
Rahul Khatuwala
Ex. Wipro & Finaco Founder
Co-Founder
Bangalore, India.