1. Capital Gains Shares of Unlisted Company

This refers to the time span for which an unlisted stock is held. Period of hholding is computed from the date on which the asset was acquired until the date of its sale. An unlisted equity share is considered a long-term capital asset if it is held for more than 24 months. If held for 24 months or less, it will be considered a short-term capital asset and taxed accordingly.

2.  Tax on Long Term Capital Gains

The tax payable on long-term gains (LTCG) is treated as follows:

1. In case of an Indian individual or HUF, it is 20% of LTCG after indexation benefit.

2. In case of domestic company, it is 20% of LTCG after giving after indexation benefit.

3. In case of a non-resident or a foreign company, it is 10% of LTCG without indexation benefit and without applying the first provision to Section 48

4. In case of any other resident, it is 20% of LTCG after indexation benefit.

3.  Tax on Short Term Capital Gains

Short term gains (STCG) arising from sale of unlisted shares shall be taxable at the normal slab rates as applicable.

4.  Exceptional Cases

As per Section 10(38): Capital gains arising from sale of a long-term capital asset, being equity share in a company or unit of an equity oriented mutual fund or unit of a business trust, shall be exempt from tax provided such transaction is chargeable to securities transaction tax.

Section 111A: Capital gains arising from sale of a short-term capital asset, being equity share in a company or unit of an equity-oriented mutual fund or unit of a business trust, shall be chargeable to tax at the rate of fifteen percent provided such transaction is chargeable to securities transaction tax.

These sections will apply only if all the following conditions are fulfilled:

1. The gains arise from sale of a capital asset
2. The asset is a long-term capital asset
3. Such transaction is chargeable to Securities Transaction Tax (STT). Exemption is available if such sale transaction takes place on a recognized stock exchange.

Consider a case where unlisted equity shares are sold by the holder of such shares under an offer for sale to the public included in an Initial Public Offer (IPO) and such shares are subsequently listed on a recognized stock exchange. STT will be chargeable as unlisted equity shares are sold by the promoters of such shares under an offer for sale to the public included in an Initial Public Offer (IPO) and such shares are subsequently listed on a stock exchange.

5.  Tax on Issue of Shares at More Than Fair Value

Where a closely held company issues its shares at a price which is more than its fair market value, the amount received in excess of fair market value of shares will be charged to tax in the hand of the company as income from other sources.

This clause is applicable when:

1. Shares are issued by a closely held company.
2. Amount is received from a resident only.
3. Issue price is in excess of fair market value of shares.