Investing in unlisted shares is becoming increasingly popular among investors seeking early-stage wealth creation opportunities. But before you enter this space, understanding how taxes work on buying, selling, and holding unlisted shares is crucial. Unlike listed equities, taxation on unlisted shares comes with its own set of rules under the Income Tax Act and other regulatory provisions. Here’s a simple breakdown to help you invest wisely and stay compliant.
Stamp Duty on Unlisted Shares
As per the amendments to the Indian Stamp Duty Act, 1899 via the Finance Act 2022, stamp duty on unlisted shares has been significantly reduced to make transactions more cost-efficient.
Two scenarios apply:
| Transaction Type | Earlier Rate | Current Rate |
| Transfer of unlisted shares | 0.25% | 0.015% |
| Allotment of unlisted shares | 0.10% | 0.005% |
Example:
If 50,000 shares are transferred at ₹100 each, the total consideration value is Rs 50,00,000.
Stamp duty = 0.015% of Rs 50,00,000 = Rs 750
Although the stamp duty is the liability of seller, many dealers include this cost within the price charged to the buyer. Without stamp duty payment, NSDL/CDSL will not allow the share transfer.
Securities Transaction Tax (STT)
STT works like TDS or TCS and is collected by stock exchanges such as NSE and BSE. It is payable by the 7th of each month; delays can attract interest and penalties.
However, STT does not apply to unlisted shares, since they are not traded on recognised stock exchanges.
Tax Collected at Source (TCS)
As per the amendment to the Income Tax Act (ITA), 1961, effective June 30, 2021:
- No TCS is levied on listed shares traded on stock exchanges
- TCS applies only to off-market transactions when selling unlisted shares
If the total sale value of unlisted shares in a financial year exceeds ₹50 lakhs, TCS at 0.1% is applicable.
In cases where the seller does not furnish PAN and Aadhaar, TCS increases to 1%.
Capital Gains Tax on Unlisted Shares
Taxation depends on the holding period and type of capital gain:
| Capital Gain Type | Holding Period | Tax (Old Regime) | Tax (New Regime) |
| Short-Term Capital Gain (STCG) | < 24 months | As per the income tax slab | As per the income tax slab |
| Long-Term Capital Gain (LTCG) | > 24 months | 20% with indexation | 12.5% without indexation |
LTCG now being taxed at 12.5% without indexation under the new regime is a significant change for investors.
Final Thoughts
Understanding taxation ensures a smoother unlisted share investing experience. From stamp duty to TCS, TDS, and capital gains, each component affects your overall returns. If you’re planning to buy or sell unlisted shares, working with a credible and knowledgeable dealer is essential to plan your investments carefully.