Many people in the Indian economy have shares as investments. However, because they are not listed, determining the tax responsibility for these unlisted shares is complicated. Unlisted share taxation in India is a complicated subject that frequently results in errors or evasion. Visit Babli Investment to learn more about the taxation of unlisted shares and why it’s important to understand.
What are the differences between a short-term capital gain tax on shares and a long-term capital gain tax on shares that are exempt under this section?
The most important thing to remember about taxes is that a publicly-traded stock will be taxed more than an unlisted stock. The tax position of a firm having a stock exchange-listed share is referred to as ‘public.’ The term ‘unlisted’ refers to a corporation whose shares are not yet publicly traded but can be exchanged privately.
The tax requirements are even more complicated if you own stock in a company that isn’t publicly traded. In this instance, dividends and capital gains from owning these shares are subject to income tax. Securities that are not listed are taxed differently than those that are. When a stock is sold within 24 months, it is referred to be short-term. The money is added to the person’s earnings and is taxed at a lower rate. Earnings from unlisted stocks held for more than 24 months are taxed as long-term capital gains. Such gains are taxed at a rate of 20% after indexation.
When it comes to unlisted securities, however, there is a concept known as fair market value (FMV). The firm appoints a commercial banker to determine the FMV of its stock. If a taxpayer sells stocks for less than the FMV, the FMV is considered the selling price by the IRS.
Only long-term capital earnings can compensate for long-term capital losses. Short-term capital losses, as well as long-term capital gains, can be offset by short-term capital gains. The remaining losses may be sustained for the next eight years.
What is the tax rate on unlisted equities capital gains sold after they are listed?
When buying and selling stocks, the tax rates are the same. In other words, after a Rs 1 lakh barrier each financial year, long-term earnings (sold for more than a year) are taxed at 10%. Short-term profits, defined as profits earned in one year or less from the sale of stock, are taxed at 15%.
What is indexation in the context of shares?
As you may have seen, when the Long Term Capital Gains was sold as an unlisted share, it had an indexing benefit. When the shares were listed, however, the indexing advantage was gone.
The government has allowed cost price indexation for shares listed after 31 January 2018 to address this issue. The indexation, however, will only last for the 2017-18 fiscal year, not the entire holding period.
For example, an unlisted XYZ company listed its shares in May 2018. In FY14-15, these shares were purchased for Rs 200. You sold the equity in FY21-22. You will index and inflate the cost price purely for the purpose of computing capital gains until FY17-18, not the fiscal year in which the sale took place.
When should you buy unlisted public shares?
You can purchase public unlisted shares through a variety of methods, including an over-the-counter broker, a direct trade with the company, or a platform. However, you won’t be able to sell these shares on the open market until the company has listed them. For further information about this, please contact us.
How much does it cost to buy and sell unlisted shares?
Because unlisted shares are less liquid than public stocks, trading them is more expensive. A brokerage cost of roughly 4% of the total purchase price is charged when buying unlisted shares, and an 8% brokerage fee is charged when selling unlisted shares.
The tax consequences of owning unlisted stocks, as well as how they will affect your annual tax return.
The purchase of unlisted shares has tax consequences that will affect your annual tax return. If you have any questions concerning the consequences or how it works, feel free to contact us.
How can this issue be avoided?
If you’re buying stock in a firm that isn’t publicly traded, be sure you understand all of the tax implications before you buy. This means you’ll need to know whether you’ll have to pay taxes when you sell your stock, how much of the sale price will go to taxes, and so on. Failure to do so could result in severe consequences for both you and your heirs.
What is the best way to invest in a mutual fund?
A mutual fund is a stock portfolio that is meant to profit from the stock’s development. An individual must purchase shares in a mutual fund that represent their proportion of ownership in the fund’s assets in order to invest in it. The cost of buying or selling those shares fluctuates as the value of the underlying asset changes. If you have unlisted shares, you should always consult a financial counselor for tax advice. If the stocks are not traded on a recognized stock exchange, the tax deduction will be unavailable, therefore it’s important to do your research and figure out what’s best for you.
Please do not hesitate to contact us if you have any questions about the content on this blog. Before you invest in unlisted shares, make sure you have all the information you need.