Capital Gain tax on sale of unlisted shares…..

Promoters of Freecharge sold their stake to Snapdeal a year ago...Similarly promoters in Jabong made their exit by selling their shares to Flipkart…..So an important question crops up…..How taxation shall be done in case of sale of unlisted shares…

Here, in this article I am going to describe the tax application on sale of equity shares which are not listed on recognized stock exchange.

First of all, you have to know that capital gain tax is applicable only when shares are held as a capital assets... An assessee shall be liable to pay tax on sales of capital assets.Capital assets held by an assessee of two types as…...

Long Term Capital Assets

Generally, Capital assets which have been held for more than 36 months are long term  capital assets. However in case of equity or preference shares in a company listed on a recognized stock exchange in India, securities listed on a recognized stockexchange in India, units of UTI, units of equity oriented mutual fund, zero coupon bonds, holding period shall be 12 months or more than 12 months. As per income-tax Act, any long-term capital gains arising on sale of equity shares and which are not listed on Indian stock exchange shall be taxable @ 20% on profit.

Short term capital assets

Shares which are not listed on recognized stock exchange in india and held as capital assets shall be short term capital assets, if shares have been held for less than 12 months. Section 111A(2) states that short term capital gain on unlisted shares shall be taxable at rate the of 15%.

When any shares which are held as capital assets is acquired through gift, will, inheritance, the period held by the previous owner is  included while determining whether it is a short term or a long-term capital asset and tax is chargeable to tax accordingly. In the case of bonus shares or rights shares, the period of holding is counted from the date of allotment.