Taxation of Unlisted Shares: Understanding the Complexities

Overview of Unlisted Shares: Unlisted shares represent ownership in companies not traded on recognized stock exchanges, offering potential returns but with unique risks and challenges, including valuation complexities and limited market liquidity. Taxation Considerations: Gains from selling unlisted shares are subject to capital gains tax, with different rates for short-term and long-term gains, based on the holding period exceeding or not exceeding 24 months.

Calculation of Capital Gains: Determining the sales consideration involves comparing the actual sale value with the Fair Market Value (FMV) on the transfer date, with the higher value considered. The cost of acquisition includes the purchase price and benefits from indexation.

Illustrative Example: An example scenario demonstrates the calculation of capital gains on the sale of unlisted shares, considering the sales consideration, purchase value, and indexation benefits. Income Tax Return Filing: Traders should file ITR 2 for reporting income from the sale of unlisted stocks, adhering to specific due dates based on tax audit requirements, with exemptions from tax audit applicable for capital gains income.

Carry Forward Losses: Short-term capital losses can be set off against both short-term and long-term gains, with any remaining loss carried forward for up to 8 years. Long-term capital losses can only be set off against long-term gains, with similar provisions for carrying forward unabsorbed losses.