What is the capital gains tax on sale of unlisted shares in India for AY 2026-27? Long-term capital gains on unlisted shares (held over 24 months) are taxed at 12.5% under Section 112, with no indexation benefit (Finance Act 2024, effective 23 July 2024). Short-term gains are taxed at your income tax slab rate. If you sell below the Rule 11UA fair market value, Section 50CA deems that FMV to be your sale price. (Source: Section 112, Income Tax Act 1961; Finance (No. 2) Act, 2024)
If you hold shares in a private limited company, received ESOPs from a startup before its IPO, or sold equity through an off-market transaction, the tax treatment is different from listed shares. There is no STT, no Rs 1.25 lakh annual exemption, and no Section 111A or 112A protection. You are in the territory of Section 112 (LTCG) and slab-rate STCG, with Fair Market Value rules that can catch both sellers and buyers off guard.
This guide covers every aspect of unlisted share taxation for AY 2026-27 (FY 2025-26), with verified rates, a worked example, and the FMV traps that trip up founders, angel investors, and ESOP holders.
What Counts as an Unlisted Share?
Any share not listed on a recognised stock exchange in India is an unlisted share. This includes:
- Private limited company shares (the most common case)
- Startup ESOPs exercised before the company lists on an exchange
- Pre-IPO shares bought through secondary markets
- LLP converted to company shares (where the LLP converted to a private limited)
- Bonus shares or rights shares in private companies
- Shares in foreign companies (for resident Indians, covered under separate provisions but the holding period and rate are the same)
The key test is simple: on the date you sell the shares, are they listed on BSE, NSE, or any other recognised exchange? If not, they are unlisted.
LTCG vs STCG: The 24-Month Threshold
Unlike listed equity (where long-term kicks in at 12 months), unlisted shares require a 24-month holding period for LTCG classification (Section 2(42A) of the Income Tax Act 1961).
| Holding period | Classification | Tax |
|---|---|---|
| 24 months or less | Short-term | Slab rate |
| More than 24 months | Long-term | 12.5% without indexation (Section 112) |
The holding period starts from the date of allotment (not the date you paid). For shares received through an ESOP, it starts from the date of exercise (when shares were actually allotted to you), not the grant date or the vesting date.
For shares received as a gift or inheritance, the holding period of the previous owner is included. If your father held the shares for 20 months and gifted them to you, and you hold them for 5 months before selling, your total holding period is 25 months. That is long-term.
Tax Rate Chart
Capital Gains Tax on Unlisted Shares: AY 2026-27
Rates effective for transfers on or after 23 July 2024
LTCG (held > 24 months)
Section 112. No indexation. No Rs 1.25 lakh exemption (that is only for listed equity under 112A).
STCG (held ≤ 24 months)
Added to total income. Taxed at 5% / 10% / 15% / 20% / 25% / 30% per applicable new regime slab.
Surcharge on LTCG (income > Rs 50 L)
Maximum surcharge on capital gains capped at 15% regardless of income level.
Source: Section 112, Income Tax Act 1961 | Finance (No. 2) Act, 2024 | Section 2(42A)
What Changed After July 23, 2024
Before the Finance (No. 2) Act 2024, resident sellers paid 20% with indexation on LTCG from unlisted shares, and the holding period was 24 months then too. For transfers on or after 23 July 2024 the rate is 12.5% without indexation. What matters is the date of transfer: a sale on or before 22 July 2024 used the old rules, a sale on or after 23 July 2024 uses the new ones.
Important: Unlike immovable property, there is no grandfathering or choice between old and new rate for unlisted shares. The 12.5% rate applies mandatorily for all transfers on or after 23 July 2024.
How to Determine Fair Market Value (Rule 11UA)
FMV of unlisted shares matters at three points, and a different rule applies at each:
| Purpose | Rule | Method |
|---|---|---|
| Seller's deemed sale price (Section 50CA) | Rule 11UAA, applying Rule 11UA(1) on the date of transfer | Adjusted net asset value on the date of transfer |
| Buyer's income on receiving shares below FMV (Section 56(2)(x)) | Rule 11UA(1)(c)(b) | Adjusted net asset value on the date of receipt |
| ESOP perquisite on exercise | Rule 3(8) | Value set by a SEBI-registered merchant banker |
The Adjusted Net Asset Value Formula
For unquoted equity shares, Rule 11UA(1)(c)(b) works out FMV as:
FMV = (A + B + C + D - L) x (PV / PE)
Where:
- A = book value of all assets in the balance sheet, other than jewellery, artistic work, shares, securities and immovable property, reduced by income tax paid (net of refunds) and unamortised deferred expenditure
- B = fair market value of jewellery and artistic work, based on a registered valuer's report
- C = fair market value of shares and securities held, determined under the same rule
- D = stamp duty value of immovable property held
- L = book value of liabilities, excluding paid-up capital, reserves (other than those for depreciation), provision for taxes, provisions for unascertained liabilities, contingent liabilities and undeclared dividends
- PV = paid-up value of the shares being valued, and PE = total paid-up equity share capital
A merchant banker's DCF report does not replace this formula for Sections 50CA and 56(2)(x). It is relevant for the ESOP perquisite value, which in turn becomes your cost of acquisition.
Section 50CA: The Seller's FMV Floor
Section 50CA is the provision that catches sellers who under-report the sale price of unlisted shares.
If you transfer unlisted shares for a consideration less than the FMV determined under Rule 11UA, the FMV is treated as your deemed full value of consideration. You pay capital gains tax on FMV minus cost, not on the actual sale price minus cost.
Example: You sell shares in your private company to your business partner for Rs 50 per share. The Rule 11UA NAV comes to Rs 120 per share. For capital gains computation, Rs 120 is your deemed sale consideration, not Rs 50. If your cost was Rs 30, your capital gain is Rs 90 per share, not Rs 20.
Exemptions from Section 50CA: Transfers covered under Section 47 (gift to a relative, transfer under a will, HUF partition, amalgamation, demerger) are not transfers for capital gains purposes, so Section 50CA does not apply to them.
Section 56(2)(x): The Buyer's Tax Trap
While Section 50CA protects the revenue from under-reported sale prices, Section 56(2)(x) catches the buyer who acquires shares below FMV.
If you receive unlisted shares for a consideration less than FMV (as determined under Rule 11UA), and the difference exceeds Rs 50,000, the entire difference is taxed as "income from other sources" in your hands. Shares received from a relative, on marriage, or under a will or inheritance are excluded.
"Relative" for this purpose includes your spouse, brothers and sisters, brothers and sisters of your spouse, brothers and sisters of either parent (uncles and aunts), lineal ascendants and descendants of you and your spouse, and the spouses of these persons. Cousins are not relatives under this definition.
Worked Example: Selling Startup Shares
Facts: Priya, a salaried employee, exercised 5,000 ESOPs in her startup employer (an unlisted private limited company) in October 2023 at an exercise price of Rs 10 per share. The FMV on the exercise date was Rs 80 per share. She already paid perquisite tax on the Rs 70 difference (Rs 3,50,000 added to her salary income in AY 2024-25).
In December 2025, she sells all 5,000 shares to an external investor for Rs 200 per share.
Holding period: October 2023 to December 2025 = 26 months. This is long-term (more than 24 months).
Cost of acquisition: Rs 80 per share (the FMV at exercise, not the exercise price of Rs 10. Using Rs 10 would result in double taxation because the perquisite tax already covered the Rs 10 to Rs 80 difference).
Sale consideration: Rs 200 per share. Assume the Rule 11UA FMV is Rs 190 per share. Since the actual sale price (Rs 200) exceeds FMV (Rs 190), Section 50CA does not apply. Rs 200 is the sale consideration.
| Item | Amount |
|---|---|
| Sale consideration (5,000 x Rs 200) | Rs 10,00,000 |
| Less: cost of acquisition (5,000 x Rs 80) | Rs 4,00,000 |
| Long-term capital gain | Rs 6,00,000 |
| Tax at 12.5% (no Rs 1.25 lakh exemption) | Rs 75,000 |
| Add: 4% cess | Rs 3,000 |
| Total tax | Rs 78,000 |
Priya's effective tax rate on the Rs 6 lakh gain is about 13%. If she had sold within 24 months (short-term), the Rs 6 lakh would have been added to her salary income and taxed at her slab rate, which could be 20-30% depending on her total income. At 20% or 30% plus 4% cess that would be Rs 1,24,800 to Rs 1,87,200, so holding for 26 months saved her between Rs 46,800 and Rs 1,09,200 in tax.
Advance tax obligation: Tax on a capital gain is due in the advance tax instalment falling after the sale: by 15 December 2025 if she sold on or before that date, or by 15 March 2026 if she sold later in December. Paid that way, no Section 234C interest arises for the earlier instalments; missing it attracts interest under Sections 234C and 234B.
Cost of Acquisition: Special Cases
The cost of acquisition depends on how you got the shares:
| How acquired | Cost of acquisition | Holding period starts |
|---|---|---|
| Purchased or subscribed | Price paid | Date of allotment or transfer to you |
| ESOP | FMV used for the perquisite on exercise (Section 49(2AA)) | Date of allotment after exercise |
| Gift, will or inheritance | Previous owner's cost (Section 49(1)) | Previous owner's date of acquisition |
| Bonus shares | Nil | Date of allotment of bonus shares |
| Rights shares | Amount paid for the rights shares | Date of allotment |
For gifted shares, if the giftor also received them as a gift, you trace back to the original person who actually purchased them. The cost of that first purchaser is your cost.
How to Report Unlisted Share Gains in Your ITR
File ITR 2 if you have salary, capital gains, and other income but no business income. File ITR 3 if you also have business or professional income.
In Schedule CG (Capital Gains), report under:
- Section B3: Long-term capital gains on assets other than listed equity (Section 112)
- Section A3: Short-term capital gains on assets other than listed equity (at slab rate)
You will need:
- Date of acquisition and date of transfer
- Cost of acquisition (with supporting documentation)
- Full value of consideration (sale price or Rule 11UA FMV, whichever is higher)
- Deductions: transfer expenses (brokerage, legal fees, stamp duty)
Section 54 does not apply, because it covers only the sale of a residential house. Section 54F does apply to LTCG on unlisted shares reinvested in a residential house (because the asset sold is not a residential house); short-term gains get no reinvestment exemption. Read our Section 54/54F guide for the conditions and limits.
What Mistakes Cost People Money?
1. Using the exercise price instead of FMV as cost for ESOPs. If your company allotted shares at Rs 10 (exercise price) and FMV was Rs 80, your cost for capital gains is Rs 80, not Rs 10. Using Rs 10 means you pay capital gains tax on the Rs 70 difference that was already taxed as a perquisite.
2. Ignoring Section 50CA. Transferring shares to a family member at a token price does not reduce your tax. If the Rule 11UA FMV is Rs 500 per share and you sell at Rs 10, the department deems Rs 500 as your sale consideration. Gift it instead (to a relative as defined in the Act) to avoid both 50CA and 56(2)(x).
3. Not computing FMV before the transaction. Work out the Rule 11UA adjusted net asset value (with a valuer's report for any jewellery or art, and stamp duty values for property) before fixing the price. Pricing at or above that value protects the seller from Section 50CA and the buyer from Section 56(2)(x).
4. Missing advance tax on a large gain. Unlike salary where TDS covers your liability, capital gains on unlisted shares have no TDS mechanism between individuals. You must self-assess and pay advance tax by the quarterly due dates. Missing the December or March deadline means 1% per month interest under Section 234C.
5. Treating the gain as business income. If you trade shares frequently as a business activity, the Income Tax Department may classify the gains as business income (taxed at slab rate, no LTCG benefit). For most one-time sellers (founders selling stakes, employees selling ESOPs), the gain is capital gain. But if you buy and sell shares in multiple companies regularly, maintain proper documentation of your intent to hold as investment.
Tax Garden Handles Unlisted Share ITR Filing
Computing capital gains on unlisted shares involves FMV validation, Rule 11UA compliance, and proper Schedule CG reporting that most ITR software does not handle well. Tax Garden's compliance team calculates the gain, checks Section 50CA applicability, and files your ITR 2 or ITR 3 correctly. See our income tax filing plans.
