Unlisted share market is regulated among a limited circle of shareholders. Being traded in the OTC (Over-the-counter) market, the investors face challenges to liquidate their funds. Stock exchange market is managed by an authorized regulating body. While there are no such rules for unlisted trading yet there are important guidelines that investors should know about.
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Directives for the Trading of Unlisted Shares in India
Tax payback on profits
When you generate profit on the sale of unlisted shares is considered as capital gains. The shares qualified for short term capital gain is taxable at 15%. Held for less than 24 months, the unlisted shares enter into this category and if kept for more duration, they are accountable to be taxed under long term capital gains at 20% per annum. The investors can benefit from the indexation benefits, if you could keep your shares for a long term.
Taxation on shares below fair market value
Investors have to pay Capital Gain tax in case they have to transfer shares to other interested buyers. They are taxed on the difference between the received sales consideration and the cost of acquisition. The received consideration amount should be equal to or more the fair market value.
To gain tax exemption against basic exemption limits, the investor should be a resident individual/HUF (Hindu United Family). In addition to that, investors will have to adjust income from all other sources except LTCG (long term capital gain) against the exemption limit. And, if they are still left with a limit, it can be adjusted against LTCG.
Valuation of unlisted shares
There are few valuation guidelines for the unlisted shares circulated by SEBI (Stock Exchange Board of India). The valuation of these shares is carried out based on following approach:
- Reaching the threshold of net worth per share. The diluted net worth of the unlisted shares must undergo computation after accounting for convertible shares.
- From the comparable industry from BSE/NSE data, take 25% of the P/E (price to earnings) ratio.
- Net worth per share’s value to be multiplied by the industry capitalization rate. It is further discounted by 15% to liquidate the funds.
The investors indulged in unlisted trading are bound to keep to their shares at least for 1 year. This duration continues after the shares get listed on the IPO (Initial Public Offering) on a stock exchange. However, investors are free from the lock-in period before the shares get listed.
Although the unlisted share market is unpredictable and risky enough. But there are high chances for the investors to make huge profits. Unlisted securities trading has been made easy with Unlisted Assets. From the unlisted shares list we have at www.unlistedassets.com , you can invest wisely in the potential shares. These are taxed at different rates based on the holding period and you make significant profits.