Investing in unlisted shares can be lucrative, but understanding the taxation aspects is crucial. Unlike listed shares, unlisted shares have different holding periods and tax implications under Indian tax laws.
How Are Unlisted Shares Taxed in India?
Tax on unlisted shares depends on the holding period:
1. Short-Term Capital Gains (STCG) Tax
- If unlisted shares are sold within 24 months of purchase, the gains are treated as short-term capital gains.
- Tax Rate: STCG is taxed as per the investor’s applicable income tax slab rate.
2. Long-Term Capital Gains (LTCG) Tax
- If unlisted shares are sold after 24 months, the gains qualify as long-term capital gains.
- Tax Rate: LTCG on unlisted shares is taxed at LTCG on unlisted shares is taxed at 12.5% without indexation benefit.
Other Tax Considerations for Unlisted Shares
1. Dividend Taxation
- Dividends received from unlisted companies are added to the investor’s income and taxed as per the applicable tax slab.
2. Gift Tax on Unlisted Shares
- If unlisted shares are received as a gift, they are taxed as per the Income Tax Act, Section 56.
- Gifts from relatives are tax-exempt, while those from non-relatives are taxed if the value exceeds ₹50,000.
3. Tax on Buyback of Unlisted Shares
- If a company buys back its unlisted shares, the buyback amount is taxed in the hands of the shareholder as “income from other sources” under Section 2(22)(f) at their applicable income tax slab rates.
How to Save Tax on Unlisted Shares?
- Capital Gains Exemptions: Investments in a residential house under Section 54F may provide exemptions, subject to conditions.
- Holding Period Strategy: Holding unlisted shares for more than 24 months qualifies them as long-term capital assets, taxed at 12.5% without indexation benefit.
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