What Are Unlisted Shares? Meaning & Tax Explained
Unlisted shares, also known as unlisted stocks, are shares of companies that are not traded on recognised stock exchanges such as the National Stock Exchange (NSE) or the Bombay Stock Exchange (BSE). They may belong to private companies, startups, pre-IPO companies, or companies that are not exchange-listed. Since they are not available through regular stock trading apps, they are generally bought and sold through private, off-market transactions.
However, you should also understand how taxes work on these shares, as they affect your final profit.
Key Takeaways
- Unlisted shares are not traded through NSE, BSE, or regular exchange-based stock trading platforms.
- They are usually bought and sold through private or off-market transactions.
- A Demat account is generally needed to receive and hold eligible unlisted shares electronically.
- The rate of unlisted shares can vary based on company performance, demand, recent transactions, valuation, liquidity, and available supply.
- Unlisted shares may offer growth exposure before a possible IPO, but they carry liquidity, valuation, information, and exit risks.
- In India, unlisted shares held for more than 24 months are generally treated as long-term capital assets. Long-term gains are generally taxed at 12.5% without indexation, while short-term gains are generally taxable at the investor’s applicable slab rate. Tax treatment should be verified for the relevant assessment year and individual circumstances.
Types of Unlisted Shares
Unlisted shares come in different types, each with its own purpose and investment approach. Here are some common types of unlisted shares you may come across:
| Category | Meaning |
|---|---|
| Pre-IPO Shares | Shares of a company that may pursue an IPO in the future, although a public listing is not guaranteed. |
| Private Company Shares | Shares of a company that is privately held and not listed on NSE or BSE. |
| ESOP Shares | Shares or stock options provided to employees under an employee stock ownership plan. |
| Delisted Company Shares | Shares of a company that was previously listed but is no longer traded on a recognised stock exchange. |
| Private Placement Shares | Shares issued or sold directly to selected investors, subject to the company’s terms and applicable rules. |
| AIF Exposure | Exposure to unlisted or pre-IPO companies through an Alternative Investment Fund rather than direct ownership of a specific share. |
These shares are mostly bought through brokers or special platforms that deal in unlisted shares.
Also Read: What is an IPO?
How Do Unlisted Shares Work?
Unlisted shares trading generally takes place through private, off-market transactions rather than an exchange order book. A buyer and seller agree on the quantity, price, payment terms, and transfer process. The shares may then be transferred to the buyer’s Demat account through the applicable depository and participant process.
Before investing, check the company details, share availability, transfer restrictions, quoted price, payment terms, and expected Demat-credit timeline. Because there is no live exchange price, the rate of unlisted shares may differ across transactions. Keep a clear payment trail and transaction records for investment tracking and tax reporting.
Why Invest in Unlisted Shares?
Investing in unlisted shares may suit investors seeking exposure to companies before a possible listing or at a stage when the company is not available through stock exchanges. Potential returns depend on company performance, entry valuation, investor demand, liquidity, and the availability of an eventual exit.
- Early Entry: Get access to companies in their growth stage before they are listed.
- High Return Potential: Potentially benefit if the company performs well and the investor is able to exit at a favourable valuation.
- Portfolio Diversification: Add a new asset class to balance risks.
- Better Valuation: Some unlisted-share transactions may be available at valuations investors consider attractive, subject to due diligence, liquidity, and company-specific risks.
Important: Unlisted shares may not be appropriate for investors who need quick liquidity or prefer daily market prices. A company may remain unlisted for a long time, and an IPO, acquisition, buyback, or profitable exit is never guaranteed.
How to Buy and Sell Unlisted Shares in India?
Buying and selling unlisted shares in India generally involves private, off-market transactions rather than regular exchange-based trading. Investors should open a Demat account, research the company, understand the quoted price, confirm the transfer process, maintain transaction records, and ensure that the shares are credited to the Demat account. Selling may take longer than selling listed shares because a suitable buyer may not always be immediately available.
Step 1: Visit Findoc’s website to explore available unlisted share options. After evaluating the company’s financials, valuation, investment horizon, and possible exit options, investors can explore relevant unlisted-share opportunities through Findoc.
Step 2: Check the company’s background, financials, and growth potential.
Step 3: Buy shares through private deals, employee ESOPs, or pre‑IPO platforms.
Step 4: Shares are safely transferred to your Demat account.
Step 5: Hold them for long-term growth or sell when a buyer is available or the company gets listed.
Before You Buy Unlisted Shares
- Verify the company name, share class, quantity, and quoted rate of unlisted shares.
- Review available financial statements, revenue model, funding history, shareholding pattern, and key business risks.
- Check whether any transfer restrictions, lock-in conditions, or eligibility requirements apply.
- Confirm the payment process, transfer process, and expected timeline for shares to reflect in the Demat account.
- Keep payment proof, transaction confirmation, contract notes where applicable, and Demat-credit details.
- Do not invest solely because a company is expected to launch an IPO; listing plans can change or be delayed.
How to Sell Unlisted Shares
Selling unlisted shares can take more time than selling listed shares because they are not traded on an exchange with continuously available buyers and sellers. Investors may sell through a good stock market broker, specialised platform, or private transaction, subject to buyer availability and the company’s transfer conditions.
Common exit routes may include:
- A secondary sale to another investor.
- A company buyback, subject to company terms and applicable rules.
- An acquisition, merger, or another corporate transaction.
- A sale through a broker or unlisted-share platform.
- Sale after IPO listing, subject to applicable lock-in and trading conditions.
Before selling, check the current quoted rate, transfer procedure, tax treatment, transaction documentation, and any contractual or regulatory restrictions. The exit price may be lower or higher than the purchase price because unlisted shares do not have a continuously quoted exchange price.
How Is the Rate of Unlisted Shares Decided?
The rate of unlisted shares is not determined through live stock-exchange trading. Instead, it is usually influenced by negotiations between buyers and sellers, recent private transactions, company performance, investor demand, and the availability of shares.
Factors that may influence the price include:
- Revenue growth, profitability, cash flow, debt, and business outlook.
- Quality of management, competitive position, and sector prospects.
- Recent funding rounds or secondary transactions.
- Valuation of comparable listed and unlisted companies.
- Demand from buyers and the supply of shares available for transfer.
- Liquidity constraints, lock-in terms, and likely exit horizon.
- Corporate developments such as fundraising, buyback, acquisition, or IPO plans.
A quoted rate should not automatically be treated as fair value. Investors should compare the price with available company information, recent transaction context, and the risks associated with limited liquidity.
Unlisted Shares vs Listed Shares
| Factor | Unlisted Shares | Listed Shares |
|---|---|---|
| Trading Venue | Private or off-market transactions | NSE, BSE, or another recognised stock exchange |
| Price Discovery | Negotiated between buyers and sellers | Continuously determined by market demand and supply |
| Liquidity | Often limited; finding a buyer may take time | Usually higher, subject to market trading volume |
| Information Availability | May be limited compared with listed companies | Regular disclosures and exchange-related information are generally available |
| Transaction Process | May require negotiation, documentation, and off-market transfer | Typically completed through a broker and trading platform |
| Investment Horizon | Often suited to investors prepared for a longer holding period | Can suit both short- and long-term investment approaches |
| Exit Options | Private sale, buyback, acquisition, or future listing | Sale through the stock exchange during market hours |
| Key Risks | Valuation, liquidity, disclosure, transfer, and exit uncertainty | Market volatility, company performance, and sector-related risks |
Taxation of Unlisted Shares: Long‑Term vs Short‑Term
Understanding the tax on unlisted shares is important because it directly affects your overall returns. Tax rates vary depending on how long you hold the shares before selling them.
| Holding Period | Tax Type | Tax Rate (New Regime) |
|---|---|---|
| More than 24 months | Long-Term Capital Gains (LTCG) | 12.5% (no indexation) |
| Less than 24 months | Short-Term Capital Gains (STCG) | As per your income tax slab |
For example: If you buy unlisted shares worth ₹1,00,000 and sell them after 3 years for ₹2,00,000, your gain is ₹1,00,000. You’ll pay 12.5% tax on ₹1,00,000, which is ₹12,500. With Findoc’s expert support and easy-to-use tracking tools, managing your unlisted share investments and their taxes becomes simple and hassle-free.
What Happens When Unlisted Shares Get Listed?
If an unlisted company launches an IPO and is listed on an exchange, its shares may become tradable once the applicable lock-in and other conditions are satisfied. A listing does not guarantee gains, and investors should not assume that every unlisted company will proceed with an IPO.
Pre-issue share capital held by non-promoter shareholders is generally subject to a six-month lock-in from the date of allotment in a public issue or from listing in certain circumstances, though exceptions and category-specific conditions may apply. Investors should review the relevant offer document and applicable rules before planning an exit.
After the shares become eligible for sale, tax treatment can depend on the transaction, holding period, and provisions applicable to listed equity. Seek professional guidance before making tax-sensitive investment decisions.
Read in Details: Things to Know Before Investing in IPO
Key Tax Rules & Filing Guidelines (ITR Forms, Gift Tax, Indexation)
Filing taxes for unlisted shares can feel tricky, but following the right rules keeps you compliant and stress‑free. Here are the key guidelines for unlisted shares taxation you should know:
- The relevant income-tax return form can depend on your income sources, taxpayer category, and the return format applicable to the relevant assessment year. Verify the appropriate form and disclosures before filing.
- Report capital gains using the applicable schedules and fields in the income-tax return for the relevant assessment year. Return formats and disclosure points can change, so verify the current filing instructions before submission.
- If you receive shares as a gift, you still need to pay capital gains tax when you sell them.
- Indexation benefits are not allowed under the new tax rules.
- Always declare unlisted shares in your Income Tax Return.
Risks and Pitfalls of Unlisted Shares
While unlisted shares offer exciting opportunities, they also come with certain challenges that investors should be aware of before making a decision. Here are some key points to keep in mind:
- Lower Liquidity: Finding buyers or sellers can take time compared to listed shares.
- Valuation Uncertainty: Prices may not always reflect real market value due to limited trading data.
- Regulatory Risk: Rules for unlisted shares can differ and may change over time.
- Longer Lock‑In Periods: Investments may be tied up until listing or a buyer is found.
- Higher Risk Exposure: Early-stage companies can be more volatile and unpredictable.
- Limited Public Information: Unlisted companies may offer less publicly available financial and operational information than listed companies.
- Counterparty and Settlement Risk: Private transactions require clear documentation, verified counterparties, and a defined transfer process.
- Transfer Restriction Risk: Company articles, shareholder agreements, or other contractual terms may restrict the transfer of shares.
- No Guaranteed IPO or Exit: A company may postpone or never launch an IPO, and investors may not find a buyer when needed.
- Concentration Risk: A large allocation to a single unlisted company can increase portfolio risk.
- Fraud and Misrepresentation Risk: Verify the company, seller, share availability, transaction terms, and documentation before transferring funds.
Who Should Consider Unlisted Shares?
Unlisted shares may be more suitable for investors who:
- Have a long investment horizon.
- Can manage the possibility of limited liquidity.
- Are willing to assess company information, valuations, transaction terms, and exit scenarios.
- Understand that an IPO, acquisition, buyback, or secondary sale is not assured.
- Can diversify rather than concentrate a large part of their portfolio in one unlisted company.
They may be less suitable for investors who need immediate liquidity, rely on daily market pricing, or prefer straightforward exchange-based exits.
Tips for Due Diligence Before Buying Unlisted Shares
Before investing in unlisted shares, it’s essential to do proper due diligence. This helps you avoid unnecessary risks and make informed decisions about your money. Here’s what you should check:
- Review the company’s financial statements and overall performance.
- Understand the business model and revenue sources to know how the company earns money.
- Check past investor activity and fund-raising rounds for credibility.
- Verify shareholding details with a reliable and trusted broker
- Ask questions about risks, lock-in period, and exit options to plan your investment strategy better.
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Frequently Asked Questions
Unlisted shares are shares of firms that are not traded on an exchange like NSE or BSE; hence, they cannot be traded using retail stock trading apps.
Unlisted shares are generally sold through private, off-market transactions facilitated by a seller, broker, specialised platform, or other intermediary. The buyer and seller agree on the price and quantity, complete the relevant documentation, and arrange for transfer through the Demat process. Investors should verify transaction terms, transfer restrictions, and payment records before proceeding.
When you sell the unlisted shares within 24 months after purchase, the gain is a Short-Term Capital Gain (or short-term gain); when you sell the unlisted shares after 24 months, then the gain is a Long-Term Capital Gain (or long-term gain).
Fair market value is generally the price an asset could reasonably fetch in an open-market transaction. For unquoted equity shares, applicable tax valuation rules can prescribe a formula-based approach and may require consideration of assets, liabilities, paid-up value, and other prescribed factors. The specific valuation method can depend on the transaction and relevant tax provision, so tax or valuation advice may be appropriate.
Retail investors may be able to access selected pre-IPO or unlisted-share opportunities through private transactions, brokers, or specialised platforms, subject to availability and transaction terms. These shares are not purchased through the regular exchange order book, and an IPO is not guaranteed. Review the company, price, transfer procedure, lock-in terms, and exit options before investing.
An investor may not generally need a separate approval solely to purchase unlisted shares. However, the transaction can involve KYC, Demat details, payment records, transfer documents, company-specific conditions, and applicable legal or tax requirements. Companies issuing or transferring shares must comply with the rules applicable to the transaction.
Unlisted shares can carry higher risk than listed shares because liquidity may be limited, price discovery may be less transparent, public disclosures may be fewer, and an exit is not guaranteed. Their suitability depends on the company, transaction terms, investor risk appetite, and ability to invest for the long term.
Listed shares trade on stock exchanges such as NSE and BSE and have continuously visible market prices during trading hours. Unlisted shares are bought and sold through private or off-market transactions, where the price is generally negotiated and liquidity may be limited.
The rate of unlisted shares is the price agreed between a buyer and seller. It may be influenced by company financials, recent funding rounds, investor demand, share availability, comparable-company valuations, liquidity, and potential exit opportunities.
Yes, unlisted shares may be sold before an IPO through a private or off-market transaction if an eligible buyer is available and the shares can be transferred. The sale may be subject to company terms, transfer restrictions, documentation requirements, and capital-gains taxation.
A Demat account is generally needed to receive and hold eligible unlisted shares electronically. The exact process can depend on the company, depository participant, share type, and transaction terms.
Pre-IPO shares are a category of unlisted shares linked to a company that may be expected to pursue an IPO. However, not every unlisted company plans to list, and an expected IPO may be delayed or may not occur.
A lock-in may apply to certain pre-issue shareholders after an IPO, depending on investor category, issue structure, and applicable regulations. Non-promoter pre-issue capital is generally subject to a six-month lock-in in a mainboard IPO, though exceptions and different rules can apply. Review the offer document and applicable terms before planning a sale.