Investing in unlisted shares of companies, startups, or ESOPs from private firms has become increasingly popular in India, especially as the startup ecosystem grows. Before buying or selling such shares, it is important to understand how these gains are taxed. Here is the complete picture for FY 2026–27.
What Are Unlisted Shares?
Unlisted shares are shares of companies that are not listed on a recognized stock exchange like NSE or BSE. These shares are typically held by founders, employees, private equity investors, and early stage backers. They change hands through private transactions, brokers, or over the counter platforms rather than public trading. Since there is no exchange involved, no Securities Transaction Tax (STT) applies to these trades. This is a detail that matters quite a bit for how the gains get taxed.
The Key Rule: Holding Period Determines Everything
The single most important factor in how an investor’s gain gets taxed is how long the investor held the shares before selling. This threshold is longer as compared to listed shares, where the long term cutoff is just 12 months. For unlisted shares, an investor needs to wait an extra year to unlock the better tax rate.
STCG
If the shares are sold within less than 24 months, the profit is treated as a Short Term Capital Gain. This profit gets added to the individual’s total income for the year and is taxed at the applicable income tax slab rate, which can go up to 30 percent, plus surcharge and cess.
Formula: Sale Price − (Cost of Acquisition + Cost of Improvement + Transfer Expenses)
LTCG
If the shares are sold after 24 months or more, the profit qualifies as a Long Term Capital Gain and is taxed at a flat rate of 12.5 percent, without indexation. Indexation, which allows adjusting the purchase cost for inflation, was removed for unlisted shares under the Finance Act 2024. For most investors sitting on shares that have appreciated significantly, 12.5 percent without indexation still works out cheaper than the older 20 percent with indexation regime.
Formula: Sale Price − Cost of Acquisition (indexation not available)
A worked example: Suppose an investor bought unlisted shares in January 2023 for ₹5,00,000 and sold them in March 2026 for ₹10,00,000 — over 24 months held.
- Gain = ₹10,00,000 − ₹5,00,000 = ₹5,00,000
- LTCG tax @ 12.5% = ₹62,500 (plus applicable cess and surcharge)
If the shares are sold at the 18-month mark instead, the entire ₹5,00,000 gain would be added to income and taxed at the applicable slab rate — up to ₹1,50,000 for those in the 30% bracket, before surcharge and cess.
Tax Rates for FY 2026–27
Union Budget 2026, presented on February 1, 2026, left capital gains rates for unlisted shares unchanged, so the Finance Act 2024 rules continue to apply this year as well.
| Holding Period | Classification | Tax Rate |
| Less than 24 months | STCG | Slab rate — up to 30%, plus surcharge and cess |
| 24 months or more | LTCG | 12.5% flat, without indexation |
A few things worth flagging for this year specifically:
- No Section 87A rebate on special-rate gains: The Section 87A rebate is not available against tax computed at special rates. For unlisted shares specifically, LTCG at 12.5% falls outside rebate eligibility. STCG on unlisted shares, being taxed at slab rates, is included in total income for rebate threshold purposes.
- One-time LTCL vs. STCG set-off relief: Under the Income Tax Act, 2025, long-term capital losses can only be set off against long-term capital gains, while short-term capital losses can offset both. Unused losses carry forward for up to 8 assessment years.
- Buyback taxation has changed: From April 1, 2026, buyback proceeds are taxed as capital gains, 20% short term or 12.5% long term, reversing the deemed dividend treatment that applied between October 2024 and March 2026. Investors with transactions in that interim window should verify their position with a CA.
- Indexation stays off the table: Despite industry hopes, Budget 2026 didn’t bring it back for unlisted shares.
ESOPs in Unlisted Companies: A Two-Stage Tax Event
For an individual holding ESOPs in a private company, the tax exposure splits into two separate events.
- At exercise: The difference between the fair market value (FMV) on the exercise date and the exercise price is treated as a perquisite, taxed as part of the individual’s salary at the applicable slab rate. The employer deducts TDS on this amount regardless of whether the shares are actually sold.
- At sale: Capital gains tax applies on the appreciation from the FMV at exercise to the eventual sale price. The holding period for STCG or LTCG classification is measured from the exercise date, not the grant date, and the cost of acquisition is the FMV on the exercise date.
Since there is generally no exchange price for unlisted shares, the sale value used for tax purposes is whichever is higher between the actual sale price and the FMV. The FMV is typically set by a registered valuer using methods such as discounted cash flow or comparable company analysis. This point matters most for gifted, inherited, or related party transfers. On the reporting side, disclosure is mandatory every year an individual holds unlisted shares, even without a transaction, using ITR 2 (no business income) or ITR 3 (with business income). STCG is reported under Schedule CG Point A5, and LTCG under Point B9.
For investors exploring private markets opportunities in India, WWIPL (wwipl.com) facilitates secondary market transactions with zero brokerage and shares credited directly to the investor’s demat account.
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Disclaimer: This content is published for educational and informational purposes only. WWIPL does not provide investment advice. Please consult a qualified financial advisor before making any investment decision.