What is Capital Gain on Unlisted Shares

Unlisted shares are taxed differently than listed shares, the tax treatment depends on the time we held the shares.If the shares are sold in 24 months the profit will be treated as Short Term Capital Gain (STCG) and taxed at the slab that matches your income (0 to 30%), when they are sold over 24 months then profit will become Long Term Capital Gain (LTCG) which is taxed at 20% with the indexation benefit (allowing adjusted purchase price to reflect inflation and lower your tax liability). By keeping accurate records, indexing when possible and timing your sale properly you can substantially reduce your tax liability.

What is Capital Gain Tax on Unlisted Shares

Capital gain on unlisted shares is the profit you make when you sell Unlisted shares of a company for a higher price than you bought them.

Example:

• You buy unlisted shares of Company X at ₹200.

• You sell them at ₹350.

• Profit (Capital Gain) = ₹150.

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Capital gains are classified based on the holding period:

Type	Holding Period	Tax Rate
Short Term Capital Gain (STCG)	Held less than 24 months	Added to your income & taxed as per your slab rate(0 to 30%)
Long Term Capital Gain (LTCG)	Held more than 24 months	20% tax rate with indexation benefit

 

What is Indexation

Think of your money like ice cream.
If you bought ice cream 3 years ago for ₹100 and now the same ice cream costs ₹120 it’s not because the ice cream got fancier it's because prices went up (inflation).

When you sell an asset like unlisted shares after a long time, a part of the higher price you get is just because of inflation not because you actually made a real profit.

Indexation is the government’s way of saying:

Okay, we’ll pretend you bought it at today’s price so you don’t pay tax on the inflation part.

Simple Example:

• Bought shares in 2020 for ₹100

• Inflation has made ₹100 in 2020 equal to ₹115 in today’s 2025 value

• With indexation the tax is calculated on the price you bought the shares for ₹100 not ₹115

Why it helps:
It reduces your taxable liability which means less tax to pay.
That’s why it’s available only for Long Term Capital Gains.

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How to calculate capital gain on unlisted shares

Formula for STCG:

Capital Gain = Sale Price – Purchase Price – Expenses

Formula for LTCG:

Capital Gain = Sale Price – Indexed Purchase Price – Expenses

Where:

Indexed Purchase Price = Purchase Price × (CII in Sale Year ÷ CII in Purchase Year)

CII = Cost Inflation Index (given by Income Tax Dept.)

 

Examples-

Example 1 – Short-Term Capital Gain

• Buy Price: ₹100 per share

• Sell Price: ₹150 per share

• Quantity: 1,000 shares

• Expenses: ₹500 brokerage

Calculation:

• Sale value = ₹150 × 1,000 = ₹1,50,000

• Purchase value = ₹100 × 1,000 = ₹1,00,000

• Capital gain = ₹1,50,000 - ₹1,00,000  ₹500 = ₹49,500

Tax: Added to your income and taxed as per your slab(0 to 30%)


Example 2 – Long-Term Capital Gain with Indexation (Easy Version)

• Buy Price: ₹100 per share in 2020 (CII = 301)

• Sell Price: ₹150 per share in 2025 (CII = 348)

• Shares: 1,000

• Expenses: ₹500
  
  

Step 1 – Adjust buy price for inflation (Indexation):
₹100 × (348 ÷ 301) = ₹115.95 per share

Step 2 – Find total adjusted cost:
₹115.95 × 1,000 = ₹1,15,950

Step 3 – Find capital gain:
₹1,50,000 – ₹1,15,950 – ₹500 = ₹33,550

Step 4 – Calculate tax @ 20%:
₹33,550 × 20% = ₹6,710

Without indexation, the profit would have been ₹49,500 and the tax @ 20% would be ₹9,900.
With indexation, profit is ₹33,550 and tax is only ₹6,710 so you save money.

(Please don’t get confused by the calculations, they are only to help you understand the logic of how unlisted shares are taxed. In most cases, your CA (Chartered Accountant) will handle the actual computation for you.)

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How Capital Gain on Unlisted Shares is Reported

What it means: Reporting capital gain on unlisted shares simply means telling the Income Tax Department how much profit you made from selling them along with the dates, prices and related details so they can calculate the tax you have to pay.

Steps:

1. Keep Proofs Ready - Purchase agreement, sale agreement, bank statements and expense receipts.

2. Choose the Right ITR Form - Usually ITR-2 or ITR-3.

3. Fill Schedule Capital Gains -

• Asset type: Unlisted Equity Shares

• Enter purchase date, sale date, price and cost (indexed cost if LTCG).

4. If Foreign Shares - Also fill Schedule FA (Foreign Assets).

5. Pay the Tax - Either in advance or while filing your return.
   
   

In short: Record everything - Select correct form - Fill details - Pay tax.

(Again, don’t get confused by the process if you have any questions regarding unlisted shares just visit sharescart.com our team is always here to guide you and make things simple.)

 

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