By Business Desk,News18,Sahas Mahapatra

Copyright news18

Investing in unlisted shares is no longer just the domain of venture capitalists or startup founders. With India’s booming startup ecosystem and private companies offering early-stage growth opportunities, retail investors are increasingly exploring this space. While unlisted shares can deliver attractive returns, they come with their own set of tax rules, especially when it comes to advance tax, capital gains and dividends.
What Are Unlisted Shares?
Unlisted shares are stocks of a company that are not listed on a stock exchange, like NSE or BSE. This means they cannot be bought or sold publicly in the stock market. They are usually held by company founders, early investors, or private equity firms.
Because they are not traded openly, they are less liquid, meaning, it can be harder to find a buyer or seller. The price of unlisted shares is not publicly available and is often decided through negotiation or valuation of the company. While they can offer high returns if the company grows, they also carry a higher risk because of limited marketability.
Do You Need To Pay Advance Tax On Unlisted Shares?
Every taxpayer must pay advance tax if the net tax liability (after deducting TDS and TCS) exceeds Rs 10,000 in a financial year. Senior citizens without business income are exempt and can discharge tax liability while filing their ITR by the due date, as per Moneycontrol.
The Income Tax Department has fixed four dates for advance tax payments:
By June 15: 15% of tax liability
By September 15: 45% of tax liability (cumulative)
By December 15: 75% of tax liability (cumulative)
By March 15: 100% of tax liability (cumulative)
For example, if your total tax liability for the year is Rs 2 lakh, you would pay Rs 30,000 by June, Rs 90,000 by September, Rs 1,50,000 by December, and the full Rs 2,00,000 by March.
Advance tax applies to both Long Term Capital Gains (LTCG) and Short Term Capital Gains (STCG) on unlisted shares. Gains made in later quarters require you to pay arrears of earlier instalments along with the current one.
Dividends from unlisted shares are taxed at your applicable income tax slab rate, and the same advance tax rules apply to them.
Taxation On Unlisted Shares
Long-Term Capital Gains (LTCG): If you hold unlisted shares for more than 24 months, gains are taxed at 12.5% (no indexation).
Short-Term Capital Gains (STCG): If held for 24 months or less, gains are taxed according to your income tax slab.
Gifted Shares: If you receive shares as a gift, capital gains are calculated based on the original owner’s purchase price.
Reporting: All gains from unlisted shares must be declared in your ITR-2 or ITR-3, with LTCG and STCG reported in their respective sections.
How To Compute Capital Gains
Capital gains = Sale Price – Purchase Price – Expenses (like brokerage fees).
Benefits Of Investing In Unlisted Shares

Early access to high-growth companies: Potentially higher returns before public listing.
Portfolio diversification: Adds an alternative asset class.
Higher returns potential: Illiquidity and early-stage opportunities can translate into significant gains.

How To Invest In Unlisted Shares

Pre-IPO investments via trusted intermediaries
Startups with high growth potential
Employee Stock Options (ESOPs)
Private placements via brokers or investment banks
Portfolio Management Services (PMS) / Alternative Investment Funds (AIFs)