If you’ve recently sold unlisted shares from your portfolio, understanding the tax implications is crucial. Dr. Suresh Surana, Founder of RSM India, breaks down the taxation dynamics.
Key Points:
1. Categorization of Gains:
Gains from unlisted shares fall into two categories: long term or short term, based on the holding period.
2. Long-Term vs. Short-Term:
– For gains to be considered long term, the holding period must exceed 2 years.
– Gains held for less than 2 years are categorized as short term.
3. Taxation on Short-Term Gains:
– Short-term capital gains on unlisted shares are taxed at the applicable marginal rate of the investor.
4. Taxation on Long-Term Gains:
– Long-term capital gains are taxed at 20% under Section 112 of the Income Tax Act for resident taxpayers.
– Residents can benefit from indexation on these long-term gains.
5. Reporting Requirements:
– Taxpayers must report details of any unlisted share transfers in their relevant Income Tax Return (ITR).
– ITR-2 contains the necessary sections for reporting such transactions.
Understanding these distinctions is vital for accurate tax reporting and compliance.