How do you calculate LTCG on unlisted shares?

The long-term capital gains (LTCG) on unlisted shares becomes applicable when such stock is sold after a holding period of 24 months.

LTCG on unlisted shares is taxed at a rate of 20%, with the indexation benefit. The indexation benefit helps to adjust the purchase price of the asset to the effects of inflation, so that the taxation is fair.

Let us take a simple example to understand the calculation of LTCG on unlisted shares:

An investor invested Rs 85,000 (170 shares purchased at Rs 500) in an unlisted stock ABC in August 2019. In March 2023, he sells the stock at Rs 650 and receives Rs 110,500. Since the holding period is more than 24 months, the gains would be taxed as LTCG at the rate of 20%. The investor gets the benefit of indexation.

To account for indexation benefit, investors should look for the Cost of Inflation Index (CII) that is published each year on the Income tax website and recalculate the purchase price of the stock. The CII for August 2019 is 289 and that for March 2023 is 331. Thus, considering the inflation over the years, the purchase power of the same stock in March'23 would be Rs 97352 (331 * 85000 / 289).

Thus, the LTCG of 20% would be applicable on 13,148 (110,500 - 97,352) instead of 25,500 (110,500 - 85,000)

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