The tax has always been a significant area of concern, be it an investment in the public market or unlisted companies. It can significantly impact profitability from an investment. And, when it comes to unlisted companies, the word “TAX” often leaves individuals confused.
No wonder it’s easy to get the desired unlisted company share price when it comes to dealing. Especially when you have a broker available to sort out all the confusion, investment in the unlisted company is easy with them.
An Unlisted share can be a lucrative opportunity, but taxation strikes badly when talking about profits from it. Yet a proper assessment of taxation may provide you with rid of all hassles associated with taxes.
So take a look at how the tax on ‘unlisted shares’ is calculated in India.
What are Unlisted Shares?
Unlisted shares are unlike listed shares in the public market. They are financial instruments that anybody can buy and sell via OTC or unlisted shares brokers.
The price of the shares is also decided by these intermediaries, ensuring a smooth dealing happens between buyer and seller on the move.
And how much you will invite taxation on your investment is also clarified by the broker you choose. But how exactly unlisted shares are taxed is still a question that has been answered briefly next in the discussion.
Taxation & Unlisted Company Shares
Tax on Unlisted shares is identical to your tax on other asset classes. Luckily, you don’t pay tax when you initiate unlisted share buy except for specific fees and commissions that you pay directly to the broker.
The only thing that is taxed is the gain from the investment. When you sell unlisted shares and make a profit, you need to comply with the condition of taxation on unlisted shares.
Again, taxation may vary depending more on whether you are making a long-term capital gain or short term.
Long Term Capital Gain (LTCG) refers to a gain on investment held for more than 24 months.
Short Term Capital Gain (STCG) refers to a gain on investment held for less than 24 or 12 months.
Tax on gains from long-term capital usually is high and low from short-term capital gains. Terms and conditions can change if the unlisted company you have parked your investment in goes public.
You need to then follow the conventional taxation regime of the public market. The process in the public market is also identical. Still, the only difference available there is the differences in taxation on gains.
Taxation is one of the most important aspects of trading and investment. The aspect is worth understanding because investors often sell their shares too soon at a minimum interest, which then converts into a loss when hefty taxation bites kick in. The unlisted shares market is exclusively recommended for long-term investors. If you can hold your investment for more than 24 months, you may invite higher taxes, but the gains would be more than the gains realized from an early exit. Hence, it’s advisable to calculate tax on the realized gains before any judgment.