How are unlisted shares taxed in India
Unlisted shares held for more than 24 months are long-term capital assets, and the gain is taxed under Section 112 of the Income-tax Act, 1961; if held for 24 months or less, the gain is short-term and added to your income at your slab rate.
The 24-month rule decides whether a sale of unlisted equity shares is treated as a short-term or long-term capital gain. Surcharge and cess apply on top of the headline rate as per the prevailing law. The figures and provisions below state the law as it stands for FY2025-26; this page is information and education, not investment or tax advice.
How is the holding period classified?
Unlisted shares held for more than 24 months are long-term capital assets; held for 24 months or less they are short-term. The period is counted from the date of acquisition to the date of transfer.
| Holding period | Classification | Tax treatment |
|---|---|---|
| 24 months or less (≤ 24 months) | Short-term capital asset | Short-term capital gain (STCG) is added to your total income and taxed at your applicable income-tax slab rate. |
| More than 24 months (> 24 months) | Long-term capital asset | Long-term capital gain (LTCG) is taxed under Section 112 of the Income-tax Act, 1961. Surcharge and cess apply as per the prevailing rules. |
The holding period is counted from the date of acquisition to the date of transfer. Surcharge and health-and-education cess apply on the tax computed above as per the rates in force for the relevant financial year.
What is the tax on long-term gains (LTCG)?
When unlisted equity shares are held for more than 24 months, the resulting gain is a long-term capital gain and is taxed under Section 112 of the Income-tax Act, 1961 at a flat 12.5% — with no indexation benefit and no exemption threshold (unlike listed equity's ₹1.25 lakh LTCG exemption). This is the rate as amended by the Finance (No. 2) Act, 2024 and applicable for FY2025-26.
- Base rate: 12.5% flat on the gain (no indexation, no exemption limit)
- Surcharge: as per your total-income slab, capped at 15% for long-term capital gains
- Health & education cess: 4% on tax + surcharge
- Holding-period clock: runs from the date of acquisition — more than 24 months makes the gain long-term
What is the tax on short-term gains (STCG)?
When unlisted shares are held for 24 months or less, the gain is a short-term capital gain. It is added to your total income for the year and taxed at your applicable income-tax slab rate — there is no separate flat rate for short-term gains on unlisted shares. Under the new regime for FY2025-26 that runs from 0% at the lowest slab up to 30% above ₹15 lakh of total income, plus applicable surcharge and 4% cess, so the effective rate depends entirely on your overall income.
Which provisions of the law apply?
- Section 2(42A) — defines the holding period; unlisted shares become long-term capital assets only after being held for more than 24 months.
- Section 112 — governs the rate of tax on long-term capital gains on unlisted shares.
- Section 56(2)(x) — taxes shares received without consideration or below fair market value as income from other sources, subject to statutory exemptions.
- Sections 70–74 — govern set-off and carry-forward of capital losses.
The provisions above are the relevant law as it stands for FY2025-26. Tax law is amended through the annual Finance Act and notifications, so rates, thresholds and surcharge bands can change from year to year.
Frequently asked questions
Yes. Gains on the sale of unlisted shares are taxable as capital gains under the Income-tax Act, 1961. If the shares are held for more than 24 months the gain is long-term and taxed under Section 112; if held for 24 months or less the gain is short-term and added to your total income at your applicable slab rate. Surcharge and cess apply as per the prevailing law. This is the general legal position for FY2025-26, not tax advice.
It depends on your holding period. Long-term capital gains (holding period more than 24 months) on unlisted shares are taxed under Section 112 of the Income-tax Act, 1961, with surcharge and cess added as per the rules in force. Short-term capital gains (24 months or less) are added to your total income and taxed at your applicable income-tax slab rate, so there is no separate flat rate. The figures depend on your overall income and the prevailing FY2025-26 rules; consult a qualified tax advisor for your situation.
Under Section 56(2)(x) of the Income-tax Act, shares received as a gift can be taxable in the recipient's hands as 'income from other sources' if the fair market value exceeds the prescribed threshold, with statutory exemptions such as gifts from specified relatives or on occasions like marriage. The specifics depend on the relationship and value. This is the general legal position, not tax advice — consult a qualified tax advisor.
Non-resident investors are generally taxed on capital gains arising in India, and tax may be withheld at source (TDS) on the transfer. Rates and any benefit under an applicable Double Taxation Avoidance Agreement (DTAA) depend on the investor's residency and the specific provisions in force. An NRI should confirm their position with a qualified tax advisor.
As a general rule under the Income-tax Act, a short-term capital loss can be set off against short-term or long-term capital gains, while a long-term capital loss can be set off only against long-term capital gains. Unabsorbed capital losses may be carried forward for a number of assessment years, subject to timely return filing and the prevailing rules. Confirm the treatment for your situation with a qualified tax advisor.
Tax rules change; consult a qualified tax advisor for your situation. The provisions above describe the general law for FY2025-26 and are not a substitute for personalised tax advice.
Reviewed by Kanishk Dev Bangia · NISM-202300182946
Last reviewed: June 2026
Disclaimer: Information only, not investment advice. Unlisted/SME securities carry higher risk and lower liquidity. This page summarises the law and is not tax, legal or investment advice.