BAJAJ BROKING
July 07, 2025
4 mins read
Investing in unlisted shares has become more popular, especially with the rise of India's startup culture and private market activity. These shares give you access to companies before they go public, but there's more to it than just buying low and selling high. You also need to understand how unlisted shares taxation works.
Just like with listed shares on the National Stock Exchange or Bombay Stock Exchange, buying and selling unlisted shares has tax consequences. The rules are different, and missing out on key details can affect your tax rebate or complicate your income tax return filing. This article explains what taxation on unlisted shares means for you and how to manage your investments smartly.
Unlisted shares are shares of companies that are not traded on recognised stock exchanges like the National Stock Exchange (NSE) or the Bombay Stock Exchange (BSE). These shares belong to companies that are usually private or not yet listed. You might come across them in early-stage start-ups, private equity deals, or even employee stock options.
Because they aren’t traded on a stock exchange, they are less liquid. But if the company grows, the shares might become valuable when the business lists publicly or gets acquired.
Aspect | Old Tax Regime | New Tax Regime |
Long Term Capital Gains Tax | 20% with indexation benefit | 12.5% without indexation |
Short Term Capital Gains Tax | Taxed as per your income slab rate | Taxed as per your income slab rate |
This change in unlisted shares taxation under the new regime lowers the rate for long-term capital gains but removes the indexation benefit. You must decide which regime works better for you based on your income level and holding duration.
When you invest early in a private company, you get access to its growth before it hits the stock exchange. This kind of early exposure can reward you later if the business succeeds.
Unlisted shares offer you another asset class that doesn’t follow public market trends closely. Adding them to your portfolio spreads your risk and helps manage volatility better.
Because these shares are often tied to smaller or growing businesses, they may yield better outcomes over time. If the company performs well or goes public, your investment value could increase significantly.
While you can invest in listed equity shares through the Bombay Stock Exchange and National Stock Exchange, investing in unlisted shares follows a different approach. If you wish to invest in unlisted shares in India, you can do so through the following options:
You can invest in companies that plan to go public soon. These transactions happen off-market and involve a transfer to your Demat account. Trusted brokers help make the process safe.
Some start-ups offer shares to early backers. You can buy them through networks or intermediaries. These shares carry risk, but also high potential, depending on the business model.
Employees often sell company shares they've earned as part of their compensation. Brokers can help you connect with these employees so you can buy directly.
Through private arrangements, you can purchase shares directly from a company’s promoters. This usually happens in larger quantities and through advisors or wealth managers.
Portfolio Management Systems and Alternative Investment Funds allow you to invest indirectly in unlisted shares. These are managed by professionals and often offer a mix of assets.
Here’s a detailed overview on unlisted shares taxation in India:
If you hold unlisted shares for more than 24 months, gains are treated as long-term and taxed at 12.5% without indexation. If held for less than a year, they fall under short-term capital gain and follow your income tax slab.
If someone gifts you unlisted shares, you don’t pay tax immediately if the donor is a relative. But when you sell them, capital gains tax applies. The original purchase price will be used to calculate your gains.
You must report unlisted shares in your income tax return filing. Disclose both long-term and short-term gains under the correct heads to avoid issues or penalties.
Now that you know the rules around unlisted shares taxation, it’s time to understand how the capital gains from these investments are calculated. You can compute capital gains using the following formula:
Capital Gain = Sale Price - Purchase Price
You can deduct any transfer-related charges like brokerage fees to get the net gain. This method for calculating taxation on unlisted shares is the same as the one used for calculating capital gains for listed shares.
Now that you know all about taxation on unlisted shares, lets see how you can report your earnings from these shares. When reporting unlisted shares in your Income Tax Return:
Use ITR-2 or ITR-3 based on your income source.
Report long-term capital gains under Point B9 of the Capital Gains schedule.
Report short-term capital gains under Point A5 of Schedule CG.
Make sure the details match your Demat statements and sale records.
You must report your opening balance, new purchases, and the closing balance for the year in your ITR.
Capital losses on unlisted shares can only be offset against other capital gains. You can’t use them to reduce tax on salary or business income.
Short-term capital losses can be set off against any capital gain, but long-term losses can only reduce long-term gains.
Unlisted shares taxation can feel confusing, but once you know the rules, you can manage your investments more wisely. These shares offer a different kind of opportunity compared to those listed on the Bombay Stock Exchange or National Stock Exchange.
Whether you’re aiming for tax rebate benefits or just planning your income tax return filing better, it pays to stay informed. Always keep records, calculate gains correctly, and file on time.
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Unlisted shares belong to companies that are not traded on stock exchanges. They are less liquid and harder to trade but often offer early access to growth-stage businesses.
Long-term capital gains are taxed at 12.5% without indexation. Short-term capital gains follow your income tax slab rate.
FMV is usually calculated using valuation reports, audited financials, and market comparables. This helps in determining tax liabilities during transfers or gifting.
You can invest through pre-IPO deals, employee stock sales, or private placements. Selling is done via off-market transfers or when the company lists.
They offer a chance to enter early, before the company lists. This can add diversity to your portfolio and balance risk.
Yes. While gifting to relatives is tax-free, when the recipient sells, capital gains tax applies based on the original cost.
Use ITR-2 or ITR-3. Mention gains under the correct sections—Point B9 for long-term and Point A5 for short-term.
They are less liquid, harder to value, and riskier. Lack of public data means you rely more on trust and research before investing.
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