I have a question on sale of listed share which was earlier unlisted. So I acquired unlisted share@Rs 10 each in 2006, in year 2022 it got listed, and in March 2023 I sold it @Rs40. How to calculate tax liability. Will I get indexation benefit and shares get taxed at 20% or fair market value as of 2018,Jan will be considered and LTCG tax of 10% applies. Request for calculation and detailed explanation pls.

Ans: Hello Devendran,

Firstly, let's discuss your tax implications for selling the Pre-IPO shares after holding them for two years. In India, shares that you've held for more than one year are considered long-term capital assets. The gains from selling such assets are called long-term capital gains (LTCG). The tax on LTCG from equity shares is 10% if the gains exceed ₹1 lakh in a financial year.

However, there's an important catch here. The LTCG tax of 10% applies only if the Securities Transaction Tax (STT) was paid both at the time of purchase and sale of these shares. Since you bought Pre-IPO shares, it's likely that STT was not paid at the time of purchase as STT is typically only applicable for transactions occurring on a recognized stock exchange. In such cases, your gains may be taxed at 20% with indexation benefits (if applicable).

Moving on to the second part of your question about gifting shares to your son. Under current Indian tax laws, any gift received from a relative, including a parent, is not taxed in the hands of the recipient. So, if you gift these shares to your son, he won't have to pay any tax at the time of receiving the gift.

However, when your son eventually sells these shares, he'll have to pay tax on the capital gains. The cost of the shares for the purpose of calculating capital gains will be the cost at which you originally purchased them.

Please do consult with a chartered accountant or a tax consultant to understand all the details specific to your situation.

Hope this helps!

Ans: Tax Rate would be 12.50% without Indexation, if shares were held for a period of more than 2 years.
Most welcome for any further clarifications. Thanks.