Taxation on Unlisted Shares in India 2026: LTCG, STCG & Surcharge

By Kanishk Dev Bangia | NISM Series XV Certified Research Analyst

Last Updated: May 2026 | Reg. No: NISM-202300182946

For example, ask any investor about the long-term capital gain (LTCG) tax on equities, and their answer would be 12.5% for the gains made over ₹1.25 lakh. However, this rule only applies to listed equities; unlisted equities fall under a completely different category of taxation according to the Income Tax Act. Unlike their listed counterparts, unlisted shares have different holding periods, no exemption of ₹1.25 lakh annually, and post-Finance Act 2024, new rate structures beginning July 23, 2024.

From acquiring pre-IPO shares in a promising startup firm, exercising your ESOPs in your unicorn organization, or just plain buying off-market stocks of a private company, having a basic knowledge of the taxability rules governing such transactions is paramount. Below is everything you need to know regarding the taxation of unlisted stocks in India through the 2026 fiscal year.

Holding Period Rules for Unlisted Shares

The crucial figure for investors of unlisted shares is 24 months. Keep your shares for more than two years to get the benefit of LTCG taxation, which is charged at an all-inclusive rate of 12.5%. Otherwise, every penny of profit you earn will be taxed as a part of your taxable income, which may go up to 30% for those in the higher tax bracket.

• Long-term capital asset: Unlisted shares when held for more than 24 months from the date of acquisition (not purchase date).

• Short-term capital asset: Unlisted shares when held for 24 months or less.

• For comparison (Listed shares): The cut-off period is just 12 months due to their liquidity and price discovery on the stock exchanges (BSE & NSE).

Why 24 months? The unlisted stock will earn a liquidity premium because there is no immediate buyer available through the exchange. This is also taken into consideration by the Income Tax Act by providing a holding period that lasts longer before classifying a stock as “long term.”

LTCG on Unlisted Shares: Rate, Surcharge & Cess (FY 2025-26)

Tax on long-term capital gains from unlisted shares is levied at 12.5%, which is a flat rate without any exemption limit or indexation benefit. It took effect from July 23, 2024, replacing the earlier 20% tax rate, with indexation benefit, under Section 112 of the Income-tax Act.

Significant point to note: The annual exemption of ₹1.25 lakh on long-term capital gains from listed equity shares provided under Section 112A does not apply to unlisted shares. In other words, each rupee earned as long-term capital gains from unlisted shares is liable for taxation.

Complete LTCG Tax Calculation — FY 2025-26

• Long Term Capital Gain Rate = 12.5%
• Surcharge: Depends upon the overall slab of the taxpayer's income (see below); maximum surcharge of 15% is applicable to long-term capital gains
• Health and Education Cess = 4% on (tax+surcharge)
• Maximum Long Term Capital Gain Tax Rate = ~14.95% (12.5%×1.15×1.04) – Business Standard, July 2025

STCG on Unlisted Shares: Slab-Rate Taxation

The tax on short-term capital gains on unlisted shares is levied at the ordinary slab rate applicable to the gross total income of the individual. No special concessional rate is levied on such capital gains. This was not changed by Budget 2024.

STCG Rate by Income Slab (New Tax Regime, FY 2025-26)

• Up to ₹3 lakh: 0% (no tax)

• ₹3 lakh – ₹7 lakh: 5%

• ₹7 lakh – ₹10 lakh: 10%

• ₹10 lakh – ₹12 lakh: 15%

• ₹12 lakh – ₹15 lakh: 20%

• Above ₹15 lakh: 30%

Worked example - STCG: An individual who is in the 30% slab realizes a Short Term Capital Gain of ₹3,00,000 from selling of unlisted stock after keeping it for 18 months. Calculation: ₹90,000 @ 30% + 15% surcharge on taxable income > ₹1 Cr + 4% cess. Total cost: ₹90,000 * 1.15 * 1.04 = ₹1,07,730. If the same person had just waited 7 more months to reach 24 months period, he would have paid ₹3,00,000 * 12.5% * 1.15 *

Indexation on Unlisted Shares: What Budget 2024 Changed

Indexation in the case of unlisted shares became ineffective from July 23, 2024, onwards with regard to acquisition done from that date. In case of shares acquired before July 23, 2024, it will be optional for the taxpayer to choose between paying 12.5% without indexation and 20% with indexation – whatever is less.

How CII-Based Indexation Works (Reference for Pre-July 2024 Holdings)

The Cost Inflation Index (CII) increases the purchase cost of an asset to take into account the inflation effect, which lowers the gain on sale. The CBDT issued Notification No. 70/2025 dated July 1, 2025, for the CII of FY 2025-26 as 376 (363 in FY 2024-25).

Calculation: Indexed Cost of Acquisition = Original Cost x (CII of Sale year ÷ CII of Purchase year)

Takeaway point: For the majority of investors having stocks that have appreciated at least 2×, the new regime of 12.5% is far better than the old regime of 20% with indexation. The higher the appreciation in stock price, the more beneficial it becomes under the new regime.

Budget 2024 & 2026 Updates Affecting Unlisted Share Taxation

Finance Minister Nirmala Sitharaman's Budget 2024, which came into effect from July 23, 2024, marked a drastic change in India’s capital gain taxation system. These were the changes made regarding the long-term capital gains tax on unlisted shares:

• Earlier LTCG tax (prior to July 23, 2024): 20% with indexation through Section 112.

• Recent LTCG tax (after July 23, 2024): 12.5% without indexation. There is no exemption limit annually.

• Transitional option: For shares purchased prior to July 23, 2024, investors have the choice of opting for whichever tax rate would lead to lower taxation while calculating their gains.

• STCG unchanged: STCG on unlisted shares is still taxed at normal rates. There has been no provision for concessional rates.

• Holding period unchanged: The period remains 24 months as per CBDT guidelines (PIB, July 2024).

• Budget 2025 and 2026: There have been no changes to this scheme announced. The 12.5% LTCG tax for unlisted shares will continue to be effective during FY 2025-26 and FY 2026-27 (Source:

Share repurchase taxation update (Effective Date: April 1, 2026): The income from stock repurchase is now classified as capital gains rather than dividends. It is taxable according to the profit realized (difference between the purchase price and cost basis).

Surcharge Slabs on Capital Gains — FY 2025-26

Surcharge is an extra charge over your tax bill but not over your income. This comes into effect if your total income exceeds ₹50 lakh. The key difference for unlisted stock investments: whereas surcharge for STCG increases with income, surcharge on LTCG from all capital assets cannot exceed 15%.

Effect on practical cases — HNI: An investor who earns income exceeding ₹5 Crore and falls under the category of High Net Worth Individuals sells his shares for a long term capital gain of ₹50 Lakh. Though the surcharge applicable here is 37%, the surcharge for LTCG cannot exceed 15%. LTCG Tax Rate: 12.5% × 1.15 × 1.04 = 14.95%. This can be compared with the Short Term Capital Gains tax rate, which would include the surcharge.

How to Report Unlisted Share Gains in Your ITR

Gains on unlisted equities need to be reported in your Income Tax Return. Refusing to report results in scrutiny, possible penalty, and ultimately prosecution under Section 276C in worst-case scenarios. The exact procedure follows:

Which ITR Form

• ITR-2: This form is suitable for most individuals who derive capital gains without having any business income.

• ITR-3: This form is mandatory if you derive capital gains along with business or professional income.

• ITR-1 (Sahaj): This form is not suitable since it doesn’t accommodate capital gains from unlisted securities.

Which Schedule and Fields

• Go to Schedule CG (Capital Gains) in ITR-2.

• In case of STCG: Under “Short term capital gains from other than listed.”

• In case of LTCG: Under “Long term capital gains from unlisted securities.”

• Fill up the cost of acquisition, sale price, and gain arising therefrom in respect of each company on different rows.

• Share holding particulars should be disclosed as per Point (j) of Part A-General.

• After Budget 2024 ITR Forms require split in pre and post-July 23, 2024 transactions.

Documents to Retain

• Contract note/purchase agreement (evidence of purchase cost and date)

• CDSL/NSDL dematerialized account statement (confirmation of period of possession and number of shares)

• Bank statements evidencing the payment and sale proceeds

• Board resolution/share certificate for old deals

Disclosure of Assets & Liabilities: If you hold unlisted shares in excess of ₹5 lakh, then even though there is no sale in the year, these must still be disclosed in Schedule AL of ITR-2.

Gift, Inheritance & Bonus Share Treatment

Gift/inheritance of unlisted shares and transfer of unlisted shares due to bonus issue is considered separately from sale transaction:

• Gift to a close relative (husband/wife, brothers/sisters, father/mother, sons/daughters): Tax-free receipt for recipient. The initial cost of the giver to the recipient becomes the cost of acquisition, and the holding period begins from the date of acquisition by the giver.
• Gift to a non-close relative: If fair market value of the gift exceeds ₹50,000, then the gift is taxable as income from other sources in hands of the recipient in the year of receipt. This is one of the common mistakes made while transferring share options.
• Inheritance (will or succession): Tax-free for the successor. The holding period of the deceased becomes part of the holding period of the successor, and the cost basis carries forward as well.
• Bonus issue: No taxation upon receipt of bonus shares. Cost of acquisition is deemed as zero (or FMV on allotment). The holding period begins from the date of allotment of bonus shares.

Common Tax Mistakes Unlisted Share Investors Make

Here are the mistakes that often lead to overpayment of taxes or notices:

• Mistake 1 – Believing that the LTCG exemption of ₹1.25 lakh is applicable: The ₹1.25 lakh LTCG exemption is only available on listed equity in Section 112A. There is no LTCG exemption for unlisted shares in Section 112.
• Mistake 2 – Not comparing indexation and flat rate (before July 2024 acquisition): Investors who bought their shares before July 23, 2024 have the choice between indexation and flat rate, but many choose the flat rate of 12.5%. However, indexation at 20% could prove more cost-effective in some cases.
• Mistake 3 – Not declaring in ITR: Unlike listed shares which are monitored using STT system, unlisted shares are not monitored. This leads to the temptation of skipping the declaration but due to SEBI's PAN-linked dematerialization process and Registrar of Companies' shareholding declarations, there is always a paper trail. The non-declaration penalty is 50-200% of evaded tax as per Section 270A.
• Mistake 4 - Incorrect inclusion of both Listed & Unlisted Gains in Schedule CG: These gains must be mentioned on different lines in Schedule CG. Mixing these two can lead to an inaccurate calculation of the rate at which taxation must be applied.
• Mistake 5 - Incorrect date of acquisition: This date will be counted as the date of allotment/demat credit and not the payment or signing date. People making installment payments sometimes do this incorrectly.

How to Optimise Tax on Unlisted Shares: Legal Strategies

Optimisation of taxes in relation to unlisted equity shares is entirely above board – here are some strategies that work within the current legal framework:

• Strategy 1: Crossing the 24-months mark – this has the maximum impact. As illustrated in the example above (STCG portion), this would allow the effective tax rate to be reduced from 30%+ to under 15%. If you have been investing for only 22-23 months, this approach is financially rewarding.
• Strategy 2: Indexation vs Flat Rate for acquisition before July 2024 – use the CII table (CII for Financial Year 2025-26 is 376, according to the Notification by CBDT No. 70/2025) for this calculation. High-appreciating assets will make a case for 12.5% without indexation; for low-appreciating, long-held assets, 20% with indexation works better.
• Strategy 3: Splitting exits in two fiscal years – if your investments put you close to the higher income slab due to STCG, consider splitting your exits into two fiscal years.
• Strategy 4 - Gift to someone in a lower tax bracket: By gifting the share to a member of the family who falls into a lower tax slab (0%-5%), the tax liability is reduced. However, it is imperative that the gift should be in good faith, recorded, and the donee should get possession and control of the shares. Be careful of the provisions of section 64 if you gift the shares to your spouse or a minor child.
• Strategy 5 - Set off capital losses: You can offset your long-term capital loss arising out of sale of shares, which are not listed, against your long-term capital gain from any other source. On the other hand, your short-term capital loss can be offset against both short-term capital gain and long-term capital gain. Losses in excess can be carried forward for up to 8 assessment years.

Frequently Asked Questions

Question: What is the LTCG tax rate for unlisted shares in India in 2026?

The long-term capital gain on unlisted shares shall be taxed at 12.5% on a flat basis without the provision of indexing or exemption. This tax rate would be applicable on holding period of above 24 months. Effective from July 23, 2024, the provision comes into effect. Applicable surcharges will be charged (not exceeding 15%), along with 4% cess.

Question: What is the STCG tax rate on unlisted shares?

Tax rates on short-term capital gains from unlisted shares, which include shareholding period of up to 24 months, are taxed at applicable income tax slab rates, which include surcharge and 4% cess. The applicable income tax slab rates can be up to 30%.

Q: When does the holding period of unlisted shares begin?

The two-year holding period begins either from the date of issuance of such shares or from the date on which the shares get dematerialized into your account. The date of purchase or date of agreement does not count. In case there is a batch of stocks, each batch will be counted separately.

Q: Are unlisted shares eligible for indexation post Budget 2024?

Indexation facility is not applicable for shares acquired from July 23, 2024, onwards. If the shares were acquired prior to July 23, 2024, then you can enjoy the benefit of paying LTCG of 20% with indexation or LTCG of 12.5% without indexation whichever is lower.

What was different for unlisted securities in Budget 2024?

Unlisted shares' long-term capital gains (LTCGs) are taxed at a reduced rate of 12.5% without indexation under the Finance Act 2024 (effective from July 23, 2024), while the STCG rates remained the same. No alterations were made in Budgets 2025 and 2026.

Q: What is the procedure for filing of unlisted stocks in ITR?

Submit ITR 2 (or ITR 3 if you earn business income). Open Schedule CG and record STCG in the section "short term capital gains on other than listed assets" and LTCG under "long-term capital gains on unlisted securities." Maintain copies of your contract note, dematerialized statement and bank statement for documentary purposes.

Q: Are unlisted stocks received as gifts taxable?

Tax does not apply to the gift if the recipient is a specified relative. The gift is taxable as "Income from other sources" if the value exceeds ₹50,000 for the recipient in the year of receipt. When the recipient disposes of such stocks later on, his/her basis of cost of acquisition shall be considered for calculating capital gains.

Disclaimer:

This is written for educational and informational purposes only. Nothing here constitutes investment advice or a recommendation to buy or sell securities. All data is sourced from publicly available information. Investments in securities markets are subject to market risks — please read all offer documents carefully before investing.