3rd JAN,2023
What are Unlisted Shares?
A Stock that is not listed on a recognized stock exchange is an unlisted stock. A trader or investor who buys and sells unlisted stocks should file ITR and pay tax on the income. Sale of Unlisted Shares is a Capital Gains Income as per the Income Tax Act. The Income Tax treatment of unlisted shares is not the same as the listed share.
Capital Gain on Sale of Unlisted Shares
Unlisted Stock is not listed on any recognized stock exchange. Thus, the Company does not pay STT i.e. Securities Transaction Tax on such shares. The period of holding is 24 months.
Long Term Capital Gain (LTCG): If an investor sells an unlisted stock held for more than 24 months, gain or loss on such sales is a Capital Gain or Capital Loss.
Short Term Capital Gain (STCG): If an investor sells an unlisted stock held for up to 24 months, gain or loss on such sale is a Short Term Capital Gain (STCG) or Short Term Capital Loss (STCL).
Income Tax on Unlisted Shares
Income Tax on Trading in unlisted shares is similar to the tax treatment of other capital assets. The following are the income tax rates on the sale of unlisted shares of a Domestic Company or Foreign Company.
LTCG – 20% with Indexation and STCG – taxed as per slab rates
Note: In the case of a Non-Resident, LTCG on Unlisted Stock is 10% without Indexation.
ITR Form, Due Date and Tax Audit Applicability for Unlisted Shares
ITR Form: Trader should file ITR 2 (ITR for Capital Gains Income) on Income Tax Website since income on the sale of unlisted stocks is a Capital Gains.
Due Date: Up to FY 2019-20
31st July – for traders to whom Tax Audit is not applicable
30th September – for traders to whom Tax Audit is applicable
FY 2020-21 Onwards
31st July – for traders to whom Tax Audit is not applicable
31st October – for traders to whom Tax Audit is applicable
Tax Audit: Since the income on the sale of unlisted stock is a Capital Gains Income, the trader need not determine the applicability of tax audit under Section 44AB of the Income Tax Act.
Carry Forward Loss on Sale of Unlisted Shares
The investor can set off Short Term Capital Loss against both STCG and LTCG. They can carry forward the remaining loss for 8 years and set off against STCG and LTCG only.
The investor can set off Long Term Capital Loss against LTCG only. They can carry forward the remaining loss for 8 years and set off against LTCG only.
In the Budget for 2022-23, the government decided that the surcharge on long-term capital gains tax on equity investments will be up to 15 per cent, while other long-term capital gains were subjected to a graded surcharge of up to 37 per cent. The surcharge on long-term capital gains on transfer of any type of assets was capped at 15 per cent.
Previously, the surcharge on long-term capital gains was applicable only on listed shares and equity funds, but in the case of other long-term capital gains, the surcharge was based on the total income. However, the Budget for 2022-23 proposed a cap on all kinds of long-term capital gains. There has been a demand to do away with long-term capital gains on equities due to securities transaction tax that is imposed on share market trade.
Revenue Secretary Tarun Bajaj had previously said that most of the capital gains on equities are made by people with high income. Hence, they should pay the taxes. Gupta also said that the Budget for 2023-24 could bring about some tweaks in the tax deducted at source provision for online gaming to contain evasion of taxes.
“India is planning to make changes in Capital gain Tax Structure Amid next Budget”
Synopsis: The finance ministry official said India would exceed budget estimates for direct tax collection by 25-30% in FY2023
An income tax official of the finance ministry on Tuesday said that changes in capital gains tax in India are expected in the next budget. The official, speaking at an event in the national capital, said that India would exceed budget estimates for direct tax collection by 25-30% in the financial year 2022-2023.