Tax Rules for Investing in Unlisted Shares in FY26 | Unlisted Ideas

New Delhi [India], June 17: Unlisted shares are steadily gaining traction among savvy investors looking to tap into companies before they hit the public markets. Whether it’s pre-IPO startups, private equity-backed firms, or marquee names like OYO still awaiting listing, the appeal lies in the potential upside. But with opportunity comes complexity, especially when it comes to taxation in India.

Recent policy changes in FY25 and early FY26 have reshaped how gains from unlisted equity are taxed in India. From revised long-term capital gains (LTCG) rates to forex-adjusted benefits for NRIs, the rules aren’t just updates; they’re strategic levers. This guide from Unlisted Ideas breaks down the key tax implications you need to know while investing in unlisted shares.

What Are Unlisted Shares?

Unlisted shares represent stakes in private companies not traded on stock exchanges like the NSE or the BSE. Trades occur off-market through different platforms, peer-to-peer deals, or structured private transactions. Examples include pre-IPO holdings in firms like NSE, OYO, and others. Their allure lies in early-stage exposure, but they lack liquidity and established pricing. Tax treatment differs significantly from listed shares.

Tax on Unlisted Equity Shares

Now you know about these shares, so you must understand the tax on unlisted shares before you start investing in them.

Long-Term Capital Gains (LTCG)

If you hold unlisted shares for more than 24 months, the resulting gains are classified as capital gains tax on unlisted shares. These gains are taxed at a flat rate of 12.5%, with no indexation benefits. This change was introduced in Budget 2024 and has been retained in the FY26 tax framework.

Previously, LTCG on unlisted shares was taxed at 20% with indexation, which adjusted the purchase price for inflation and reduced taxable gains. For instance, If you buy unlisted shares for ₹5 lakh and sell them after 30 months for ₹8 lakh, your taxable gain is ₹3 lakh. At 12.5%, the tax payable is ₹37,500.

Short-Term Capital Gains (STCG)

If the holding period is 24 months or less, the gains fall under short-term capital gains (STCG). These are added to your total income and taxed as per your applicable income slab. For high-income individuals, this could mean paying 30% tax, while those in lower brackets may pay as little as 5–10%.

In some cases, especially with frequent trades, tax authorities may treat gains from unlisted shares as business income. While this adds a layer of scrutiny, it provides clarity in cases of high-volume or rapid transactions.

Securities Transaction Tax (STT)

Since these shares don’t trade on formal exchanges, STT does not apply, reducing your transaction cost by roughly 0.1%. This is particularly advantageous during bulk buys or private placements, including deals involving NSE Unlisted Share Price.

Indexation on Unlisted Shares

Indexation is a tax benefit that adjusts the purchase cost of an asset based on inflation, reducing the overall taxable gain. This was available when LTCG on unlisted shares was taxed at 20% with indexation, prior to Budget 2024.

However, under the current 12.5% LTCG regime, introduced in FY25 and continuing in FY26, indexation benefits are no longer available.

This means investors now pay tax on nominal gains rather than inflation-adjusted (real) gains. The absence of indexation can significantly increase the effective tax burden, especially during high-inflation periods.

Strategically, investors may consider holding their unlisted shares longer, beyond the 24-month LTCG threshold, so that the potential for higher real returns offsets the tax implication from inflation.

Taxation on NRIs Buying Unlisted Shares

Budget 2025 introduced Clause 72(6) under the Income Tax Act, creating a favourable framework for NRIs investing in unlisted shares and debentures. This provision helps shield NRI investors from excessive taxation in India due to currency fluctuations.

Key features include:

  • Capital gains tax on unlisted shares is calculated in the foreign currency used at the time of investment and sale.
  • These amounts are then converted into INR using the RBI reference rate applicable on both dates.
  • As a result, gains from rupee depreciation are excluded from taxation, making the effective tax liability significantly lower.

Impact:
This clause can result in a potential LTCG tax reduction of up to 72%, depending on currency movement during the holding period. It’s especially beneficial for long-term NRI investors in pre-IPO companies like OYO, NSDL, or NSE.

Unlisted Equity Shares: Filing in ITR

Accurate reporting of unlisted share transactions in your Income Tax Return (ITR) is non-negotiable. The tax department now expects detailed disclosures for all off-market equity dealings, especially with increasing digital tracking under AIS and TIS systems.

Filing requirements:

  • STCG is declared under “Income from Other Sources” if treated as speculative or business income.
  • LTCG is reported under the “Capital Gains” schedule in ITR-2 or ITR-3, depending on your profile.
  • NRIs may face TDS deduction at 20% or 30%, depending on the treaty and source country. Excess tax paid can be claimed as a refund while filing an ITR.

Consequences of non-compliance:

  • Misreporting or underreporting can lead to penalties under Sections 234F and 270A
  • Interest under Sections 234B and 234C may apply
  • In some cases, scrutiny notices or reassessments may follow

Conclusion

Unlisted shares offer early access to high-growth companies, but tax implications must be clearly understood. For trading firms, highlighting these tax nuances builds transparency and investor trust. As the market for unlisted equities grows, tax-efficient investing and informed compliance will define success. Investing with clarity today ensures confidence tomorrow.

Disclaimer: This article is for informational purposes only and does not constitute financial advice. Investing in stocks includes financial risks, and past performance is not indicative of future results. Readers should conduct their own research or consult with a qualified financial advisor before making any investment decisions.

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