Investing in Pre-IPO and unlisted shares can be highly rewarding—but many investors overlook a critical piece of the puzzle: taxation.
Whether you’ve sold your unlisted shares before the IPO or made a profit post-listing, it’s important to understand how capital gains taxes apply, what documents you need, and how to plan smartly to reduce your tax burden.
Here’s a complete 2025 tax guide tailored for investors in unlisted and Pre-IPO shares in India.
📌 What Are Unlisted Shares?
Unlisted shares are equity shares of companies not listed on stock exchanges like the NSE or the BSE. These include:
- Pre-IPO investments
- Startup equity
- ESOPs held by employees
- Delisted or privately held companies
These shares are usually bought and sold through private deals or SEBI-compliant platforms like PreipoShare.in.
💰 When Are You Taxed?
You are taxed when:
- You sell your unlisted shares (either before or after the IPO)
- You receive dividends (taxed as per your income slab)
- There is a buyback by the company
This article focuses primarily on capital gains tax from selling unlisted shares.
📊 Taxation on Sale of Unlisted Shares
The tax depends on how long you held the shares before selling them:
| Holding Period | Tax Treatment | Tax Rate |
|---|---|---|
| < 24 months | Short-Term Capital Gains | Taxed as per income slab |
| > 24 months | Long-Term Capital Gains | 20% with indexation benefit |
🧾 What is Indexation?
Indexation adjusts your purchase price to account for inflation, reducing your taxable gain.
For example:
- If you bought shares in 2020 for ₹1,00,000
- And sold in 2025 for ₹2,00,000
- You apply a cost inflation index (CII) to reduce your capital gain
This is only available for long-term gains on unlisted shares.
🧮 Example of Capital Gains Tax Calculation
Let’s say:
- You bought shares for ₹1,00,000 in 2021
- Sold them in 2025 for ₹2,50,000
- The indexed cost = ₹1,20,000 (after applying inflation index)
- Capital Gain = ₹2,50,000 – ₹1,20,000 = ₹1,30,000
You’ll pay 20% LTCG tax on ₹1,30,000 = ₹26,000 (plus cess).
🔄 What If Shares Get Listed?
If you sell after IPO and listing on the stock exchange, then:
- < 1 year: 15% tax (Short-Term)
- > 1 year: 10% tax on gains above ₹1 lakh (Long-Term)
This applies only to shares sold on stock exchanges. Off-market sales of pre-IPO shares follow unlisted share rules.
📑 Documents Required for Filing Tax
- To report gains/losses, keep these handy:
- Purchase contract note or invoice
- Demat account statement
- Bank statement (proof of payment/receipt)
- ISIN number of the shares
- Capital gain statement (from broker or platform)
🛡️ How to Save Tax on Unlisted Shares
Here are some legal strategies:
| Strategy | Description |
|---|---|
| Use Indexation | Reduces LTCG tax liability |
| Gift Shares to Family Members | No tax on gift; receiver pays capital gain when sold |
| Set Off Capital Losses | Offset short/long-term gains with other losses |
| Invest in Capital Gain Bonds | Section 54EC benefits if eligible |
| Plan Exit Post-24 Months | To convert STCG to LTCG with lower rates |
⚠️ Common Mistakes to Avoid
- ❌ Not reporting sale of unlisted shares in ITR
- ❌ Misreporting holding period
- ❌ Forgetting indexation
- ❌ Missing capital gain exemptions
- ❌ Using unregistered brokers (no tax records)
✅ FAQs
Q1: Is there TDS on the sale of unlisted shares?
Usually no, but check if your platform deducts TDS or provides a capital gain summary.
Q2: Can I avoid tax by reinvesting?
Only if you qualify for exemption under sections like 54F or 54EC.
Q3: Do I pay tax even if shares haven’t been listed?
Yes, once you sell them, even off-market, you must pay capital gains tax.
🛎️ Final Thoughts
Tax on Pre-IPO and unlisted shares in India is not as complex as it seems, once you understand holding periods, indexation, and proper documentation.
Whether you’re a retail investor or HNI, consult a tax expert and use trusted platforms like PreipoShare.in to ensure your transactions are clean, documented, and tax-compliant.