How to calculate capital gains tax on the sale of unlisted shares?

I had an unlisted share for more than 20 years which got merged into a listed company. Now I have sold the listed company's share. I would like to know how I need to calculate capital gain tax. - Anonymous

In order 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.

Next is the question of the rate of tax applicable.

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.

Hence, in your case, since the shares have been held for more than 24 months but being unlisted at the time of purchase, securities transaction tax would not have been paid at the time of purchase, the long-term capital gains would be taxed at the rate of 20 per cent with the indexation benefit.

Suggested read: How mutual fund gains are taxed

This article was originally published on January 25, 2023.