If you invest or deal in unlisted shares—pre-IPO stakes, ESOPs, secondary transfers—2024–25 brought big tax changes you can’t ignore. This guide explains how India now taxes unlisted equity: the holding period rules, LTCG/STCG rates, how Section 56(2)(x) and Rule 11UA valuation apply to gifts or low-priced transfers, what happens on inheritance, and practical ways to document and price trades so you don’t trip compliance.
Throughout, we’ve added UnlistedCorner-specific notes so you can leverage our vendor (Channel Partner) system and investor workflows effectively.
TL;DR (for quick reference)
- Holding period (unlisted shares): > 24 months = Long-term, ≤ 24 months = Short-term. This remains unchanged post the 2024 overhaul.
- LTCG on unlisted shares (from July 23, 2024): Flat 12.5%; no indexation under the simplified regime. (Applies across assets per Finance (No. 2) Act, 2024.)
- STCG on unlisted shares: Taxed at your slab rate (Section 111A applies to listed, STT-paid equity only).
- Section 56(2)(x) (gifts / inadequate consideration): Gifts from relatives or by will/inheritance/marriage are exempt; otherwise, receipt above ₹50,000 (or below FMV for certain properties) can be taxed in the recipient’s hands. For unquoted shares, FMV is as per Rule 11UA.
- Section 50CA (seller side): If you sell unquoted shares below FMV, your sale value is deemed to be FMV for capital gains. FMV again is by Rule 11UA.
- Inheritance (no estate duty in India): No tax on receipt. When you sell later, cost = previous owner’s cost, and their holding period is carried over to determine LTCG/STCG.
Unlisted Shares: What Counts as Long-Term vs Short-Term in 2025?
Under Section 2(42A) (as amended), the holding period rule is simple:
- Unlisted shares are long-term if held for more than 24 months; otherwise short-term. (Listed equity and certain units become long-term after 12 months.)
Why this matters: land, gold, bonds, and unlisted equity fall into the 24-month bucket. Listed equity enjoys a 12-month test. Knowing this dictates both your rate and planning windows.
Capital Gains on Unlisted Shares (2025)
Long-Term Capital Gains (LTCG)
From July 23, 2024, India moved to a uniform 12.5% LTCG rate without indexation across capital assets (with specific grandfathering only for certain land/building scenarios). For unlisted shares, that means:
- Rate: 12.5% (plus surcharge & cess), no indexation.
- Applies to transfers on/after July 23, 2024; earlier transfers followed the old regime.
Note: Government FAQs and CBDT tutorials explicitly reflect the new regime with the 12.5% LTCG and no indexation for transfers on/after 23-07-2024.
Short-Term Capital Gains (STCG)
- Unlisted shares: STCG is taxed at your slab rate (Section 111A’s special rate does not apply).
- Listed equity STCG under Section 111A is now 20% (earlier 15%) where STT is paid and the trade is through a recognised stock exchange; this doesn’t cover unlisted.
Prices Below FMV, Gifts, and Transfers Within Family: 56(2)(x), 50CA & Rule 11UA
When you deal in unquoted/unlisted shares, two anti-abuse provisions often apply:
- Section 50CA (seller side): If you sell below FMV, tax authorities deem FMV as your sale consideration for capital gains.
- Section 56(2)(x) (recipient side): If you receive shares without or for inadequate consideration, the difference up to FMV may be taxable as “income from other sources” (threshold: typically ₹50,000)—unless an exemption (e.g., relative, will/inheritance, marriage) applies.
How is FMV computed for unlisted equity?
Use Rule 11UA: for unquoted equity shares, FMV is determined via the NAV formula and specified adjustments (jewellery/art at FMV; immovable at stamp value; etc.). This rule is referenced for both 56(2)(x) and 50CA.
Practical takeaway: In a secondary transfer, align your deal price to Rule 11UA FMV (or have a robust DCF/valuation note where permitted) to avoid double taxation—the seller being pushed up to FMV (50CA) and the buyer taxed on a “benefit” (56(2)(x)).
Gifts & Inheritance of Unlisted Shares
Gifts (Section 56(2)(x))
- Exempt when received from “relatives” (specific list: spouse; siblings; siblings of spouse or of either parent; lineal ascendants/descendants; etc.), on marriage, or under a will/inheritance.
- Taxable for recipients if value > ₹50,000 from non-relatives (subject to property-specific rules).
Inheritance / Will
- No inheritance tax in India.
- When you sell inherited/gifted shares later, Section 49(1) deems your cost = previous owner’s cost; and Explanation 1 to Section 2(42A) adds previous owner’s holding period for determining long vs short term.
Why this matters: If your parent held unlisted shares for 5 years and you inherit them, then sell after 2 months, it’s still LTCG (24-month test satisfied by combining periods).
Worked Examples (2025 rules)
Assume surcharge/cess extra; dates after July 23, 2024 use new LTCG rules.
Example A — Long-Term sale of unlisted shares (resident)
- Buy 20,000 shares at ₹100 each on Aug 1, 2021 (cost = ₹20,00,000)
- Sell at ₹165 on Aug 5, 2025 (sale = ₹33,00,000)
- Holding period: ~48 months → LTCG.
- LTCG = ₹33,00,000 − ₹20,00,000 = ₹13,00,000
- Tax @ 12.5% = ₹1,62,500 (+ surcharge/cess).
Example B — Short-Term sale (unlisted, slab rate)
- Buy 5,000 shares at ₹300 on Oct 1, 2024; sell at ₹360 on May 1, 2025
- Holding: ~7 months → STCG
- Gain: ₹3,00,000
- Tax: as per your slab (not 111A).
Example C — Gift from father, later sale
- Father bought 10,000 shares at ₹50 in 2019; gifts to you in July 2025 (no tax on receipt—relative).
- Your cost = ₹50; holding period includes father’s period.
- You sell in Aug 2025 at ₹95 → LTCG (combined > 24 months). Tax @ 12.5% on (₹95−₹50).
Example D — Sale below FMV (avoid this mismatch)
- NAV-based FMV per Rule 11UA is ₹120; you sell at ₹100 to a friend.
- Seller: Section 50CA deems sale @ ₹120 for capital gains.
- Buyer: Section 56(2)(x) may tax ₹20/share as income from other sources (unless an exemption applies).
Solution: Price at FMV or document a method permitted under rules to avoid the 50CA/56(2)(x) “double hit.”
Exemptions & Set-offs You Might Consider
- Section 54F (LTCG on “any” long-term asset, incl. unlisted shares): You may invest net consideration into one residential house within timelines to claim exemption (individual/HUF; conditions apply). Caveat: rules and judicial positions exist—plan carefully.
- Set-off and carry-forward: Capital losses have specific set-off rules; ensure your broker or tax pro maps losses correctly against LTCG/STCG buckets in ITR schedules. (Use ITR-2 flows for capital gains.)
2024–25 Changes: What Really Changed vs Earlier
- LTCG, all assets: 12.5% without indexation for transfers on/after 23-07-2024 (was 20% with indexation for many non-equity assets earlier).
- Listed equity STCG (111A): 20% (was 15%). Unlisted STCG remains slab-rate.
- Holding periods simplified: Listed at 12 months, others (incl. unlisted) at 24 months.
Compliance Playbook for Unlisted Share Transfers
- Get Rule 11UA FMV on the valuation date (company balance-sheet, adjustments). Keep the working in your deal file.
- Align the price close to FMV to avoid 50CA/56(2)(x) mismatches; or have a defensible valuation (e.g., DCF where allowed).
- Paper the transfer:
- Offer/Acceptance, price justification, board/shareholder approvals if needed.
- KYC, PAN, demat off-market transfer instructions, consideration proof.
- Document “exempt” relationships for gifts (family tree/affidavit if necessary) to substantiate relative exemption under 56(2)(x).
- Report correctly in ITR: Schedule Capital Gains; keep broker contract notes, bank trail, valuation report.
How UnlistedCorner Helps Investors & Channel Partners
UnlistedCorner.com is a specialised marketplace for unlisted/pre-IPO shares with a strong focus on process hygiene and compliance:
- Verified listings & prices with research notes on marquee names.
- Active blog/news to navigate IPO timelines, record dates, and liquidity windows.
- Channel Partner (vendor) system for dealers/advisors:
- Leads dashboard, daily prices, knowledge centre, commission tracking, and 3-step onboarding (query → verification → go-live).
Why this matters for tax: our structured workflows encourage FMV-aligned pricing, proper deal documentation, and timely updates around corporate actions—reducing your risk of 50CA/56(2)(x) disputes and smoothing ITR reporting.
FAQs
1) Is the 12.5% LTCG rate really applicable to unlisted shares now?
Yes. From July 23, 2024, India adopted a uniform 12.5% LTCG regime without indexation across capital assets. Unlisted shares sold after this date fall under the new rate.
2) Does indexation apply to unlisted-share LTCG anymore?
No—for transfers on/after 23-07-2024, indexation is removed; some grandfathering exists for land/buildings in resident individual/HUF hands (not relevant to unlisted equity).
3) What is the holding period for unlisted equity to qualify as LTCG?
More than 24 months (≤ 24 months is STCG). This remained unchanged in the simplification.
4) Are gifts of unlisted shares taxed?
Gifts from relatives (as defined) are exempt; gifts by will/inheritance and on marriage are also exempt. Otherwise, gifts over ₹50,000 can be taxed in the recipient’s hands.
5) What if we transfer below FMV within friends/family?
- Seller: Section 50CA can deem FMV as the sale value for capital gains.
- Buyer: Section 56(2)(x) can tax the shortfall as income (unless exempt). Use Rule 11UA FMV to price.
6) Do I get any exemption when I have LTCG from selling unlisted shares?
Potentially via Section 54F if you invest net consideration in one residential house within timelines (subject to conditions and litigation landscape). Plan with a tax professional.
7) How does inheritance work for tax on unlisted shares?
No tax on receiving by inheritance. On sale, your cost equals previous owner’s cost (Sec 49), and their holding period also counts to determine LTCG/STCG (Sec 2(42A) Expl. 1).
Disclaimer
This article is an informational guide based on Government FAQs/CBDT tutorials and reputable summaries of the Finance (No. 2) Act, 2024 as available on the date above. Tax law evolves, and case-specific factors (residency, surcharge, business vs capital account, GAAR/POEM, FEMA/SEBI rules) may change outcomes. Please consult your tax advisor before acting. Key sources include the PIB FAQ on the new capital gains regime, Income Tax Department tutorials for LTCG/STCG, and official materials on Rule 11UA, Section 56(2)(x), Section 50CA, Section 49, and Section 2(42A).