Taxation of unlisted shares can vary depending on the jurisdiction and the specific tax laws in place.
In many countries, including India, the taxation of income from the transfer of unlisted shares is subject to capital gains tax. Capital gains can be categorized into short-term capital gains (STCG) and long-term capital gains (LTCG), and the tax rates may differ for each.
Here is a general overview of how the taxation of unlisted shares might work:
Short-Term Capital Gains (STCG):
If the holding period of the unlisted shares is less than a specified period (Two year), the resulting gains are considered short-term.
Short-term capital gains are usually taxed at the applicable short-term capital gains tax rate, which is the individual’s regular income tax rate.
Long-Term Capital Gains (LTCG):
If the holding period of the unlisted shares is more than the specified period (two year), the resulting gains are considered long-term.
Long-term capital gains on unlisted shares may be taxed at a different rate than short-term gains.
In some jurisdictions, long-term capital gains are subject to a lower tax rate.
Indexation Benefits:
Some jurisdictions allow for indexation benefits on long-term capital gains.
This involves adjusting the purchase price of the shares based on inflation, reducing the taxable gain.
Exemptions and Deductions:
Certain exemptions or deductions may be available, especially for long-term capital gains.
For example, some jurisdictions provide exemptions for gains invested in specified assets.
Assets like residential property or certain bonds.
Reporting and Compliance:
Taxpayers are typically required to report capital gains from the transfer of unlisted shares in their income tax returns. Failure to report such gains can result in penalties.
Calculation of Capital Gains Tax
To calculate the capital gains tax, we need to determine whether the unlisted share is a long-term capital asset or a short-term capital asset.
If the unlisted share has been held for more than 24 months, then it is a long-term capital asset, else it is short-term capital asset.
Since the unlisted share is a long-term capital asset, the gains would be taxed at the rate of 20 per cent with the benefits of indexation.
The rate of 10 per cent for long-term capital gains in excess of
Rs 1, 00,000 shall not apply since securities transaction tax is not paid at the time of both purchase and sale.
On the other hand, had the unlisted share been a short-term capital asset, the gains would be taxed at the rate of 15 per cent if securities transaction tax is paid at the time of sale.
In any other case, short-term capital gains would be taxed at the slab rates applicable to you.
Calculation of Capital Gains Tax for NRI’s
To calculate the capital gains tax for NRI’s, we need to determine whether the unlisted share is a long-term capital asset or a short-term capital asset.
For Non-Resident Indians (NRI’s), the capital gains tax differs based on the holding period.
For long-term gains, which occur when an asset is held for two years, the tax rate is a flat 10%.
On the other hand, short-term gains, arising from assets held for a shorter period, are taxed according to the applicable income tax slab.
It’s essential for NRI’s to be aware of these rates when calculating their capital gains tax liabilities.
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