How to Declare Unlisted Shares in Your ITR

If you own shares of a private company, maybe you exercised ESOPs at a startup, invested in a friend's business, or bought shares in an unlisted company through a platform like Planify Capitals. The Income Tax Department wants to know about it. This is true whether you sold those shares this year or you're simply holding on to them.

This guide breaks down what "unlisted shares" mean for tax purposes, why you must report them, which ITR form to use, how to fill the relevant schedules, and how these shares are taxed.

Many people assume that if they haven't sold their shares, there's nothing to report. That's a common and costly mistake. Disclosure of unlisted shares is mandatory in the ITR, every single year you hold them, regardless of whether you bought, sold, or did nothing with them during the year. This is separate from reporting any profit or loss. 

Which ITR Form Should You Use?

ITR-1 (Sahaj): Not Allowed

This is the simplest form, meant for salaried people with straightforward income (salary, one house property, interest income, and small agricultural income). It has no schedule at all for shareholding or capital gains on unlisted shares.

ITR-4 (Sugam): Not Allowed 

This is the presumptive-taxation form for small businesses and professionals. Like ITR-1, it has no provision to report unlisted shareholding or capital gains from such shares, so it cannot be used either. 

ITR-2: Allowed

Use this if you have:

• Salary or pension income
• Capital gains (including from unlisted shares) 
  
• Income from house property
  
• Other income (interest, dividends, etc.)
  
• No income from a business or profession

ITR-2 contains the two key sections: the shareholding disclosure (a general schedule that covers directorships and unlisted equity holdings) and Schedule CG for reporting any capital gain or loss on sale.

ITR-3: Allowed

Use this if, in addition to holding unlisted shares, you also have income from a proprietary business or profession (freelancing, consulting, running a shop, trading as a business, etc.). ITR-3 includes everything ITR-2 does, plus additional schedules for business income, balance sheet, and profit & loss.

The Shareholding Disclosure: Details of Unlisted Equity Shares

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How the Capital Gain Is Taxed

If you sold any shares during the year, you will also need to report the profit or loss under Schedule CG, which is the Capital Gains schedule. This is how the tax works for the Capital Gain.

To figure out the tax on the Capital Gain you have to follow a steps.

Step 1 is to determine how long you held the shares. 

For shares the time period is different from listed shares. 

• If you held the shares for more than 24 months it is considered a Long-Term Capital Gain. 

• If you held the shares for 24 months or less it is considered a Short-Term Capital Gain. 

Step 2 is to apply the tax rate to the Capital Gain. 

• The Long-Term Capital Gain on shares is taxed at a flat rate of 12.5 percent. It is also important to note that you do not get the indexation benefit for the Capital Gain on shares. This rule changed with the Finance Act 2024. It has been in effect since 23 July 2024. You also do not get the exemption of ₹1.25 lakh for the Capital Gain, on shares. This exemption only applies to listed shares under Section 112A for the Capital Gain.

• STCG on unlisted shares is added to your total income and taxed at your regular income tax slab rate; there's no special flat rate like there is for listed shares.

Step 3: Calculating Cost of Acquisition (Important for ESOPs)

For most purchases, your cost of acquisition is simply what you paid for the shares. But for ESOPs, it's a little different:

The cost of getting the shares is usually the Fair Market Value of the shares on the day you got them. For companies that are not listed on the stock market this value is calculated using a method under Rule 11UA of the Income Tax Rules. 

Step 4: Put It in Schedule CG

• Short-term gains go into the section for "Sale of assets other than listed shares/securities," commonly labeled Section A5 in Schedule CG.

• Long-term gains go into the corresponding long-term section, commonly labeled Section B9.

​What If You Incure a Loss?

• A short-term capital loss can be set off against both short-term and long-term capital gains from any capital assets
• A long-term capital loss can only be set off against long-term capital gains.
• Unused losses can be carried forward for 8 assessment years, but only if you file your return on time and formally declare the loss.
• Capital losses cannot be adjusted against your salary or business income, they only offset other capital gains.

Telling the tax authority about shares can seem like a lot of extra work but it is really just two simple things: tell them what shares you have every year and report any sales correctly with the right details, about how long you had the shares and what they cost you.