People usually buy shares of companies that are listed on the share market. But that is not the only place where you can buy shares from. You can also buy shares from companies that are not listed in the Indian share market. This usually falls under the category of unlisted shares, and the taxation implied on the unlisted shares are also different from the shares that are listed. If you sell these shares and make a profit out of them, it will be considered a long or short-term capital gain. There are several things you can know about shares that are not listed. Let us take into consideration 5 things that you should know about long-term capital gains on shares of companies that are not listed in India. But before coming to that let us understand what is meant by long-term capital gains on shares
Long-term Capital Gains on Shares
Long-term capital gains or LTCG on shares refer to the profit that you make by selling the shares after a period of 12 months. It is calculated by deducting the cost price of the shares from the selling price. As the selling price is higher here, it is called long-term capital gain. If you sell shares after a holding period of less than a month, it is called short-term capital gain.
But the terms stipulated above are applicable only for listed shares for companies that are based in India. The terms and conditions for LTCG on shares of companies not listed in India is somewhat different.
Long-term capital gains for international shares are made when you sell them after a holding period of 24 months.
Treated as Unlisted Shares
For companies not listed in India, there are separate provisions to consider. But if they are to be compared with something similar, then that would be unlisted shares. As the name suggests, unlisted shares are the ones that are not listed on the stock exchange. You have to buy these shares from the Over Counter market. Shares of companies not listed in India are also of these types as you cannot trade in them in the share market. There are many trading platforms and brokerage firms where you can purchase these shares, hold them for the long-term and then make LTCG on shares by selling them.
LTCG on Shares Not Listed in India
The long-term holding period of shares not listed in India is not the same as the ones listed here. Instead, you will have to hold these shares for a period above 24 months before they can qualify for a long-term period. And when you sell these shares for profit after 24 months they are known as long-term capital gains.
Taxation is Applicable
If you buy shares from companies not listed in India, you will still have to pay taxes when you make a gain by selling them. If you have sold these shares for a period above 24 months, then it will be considered long-term capital gain and the taxation levied on it will be 20%. On the other hand, if the shares were sold within the 24 months of the holding period then it is considered a short-term capital gain. The taxation rate for short-term capital gain will be levied depending on the gain amount and the tax slab rates.
Conversion Rates Should be Considered
LTCG on shares of companies not listed in India factor in currency conversion which is something that you need to keep in mind. For instance, if the company you have invested in is in the USA, then you will have to invest money equivalent to the value of the share in that currency. Similarly, when returns are made on your investments, they will first be converted into the national currency and only then you will be able to get the amount. There are many third-party platforms that do the currency conversion but for that as well you will have to pay some charges.
Indexation benefit is something that you get to have for shares that are not listed in India. Indexation comes really handy when taxation is put into consideration for LTCG on shares. Indexation is the inclusion of inflation rates in the cost of acquisition of the shares. What this does is that it increases the amount of acquisition cost and as a result, the amount gained is reduced. Since taxation is levied only on the gains, so with the reduced gain amount, it implies your taxation amount will also be less. An interesting thing to note here is that the indexation benefit is not applicable for shares listed on the share market.
Companies that are not listed in India are not regulated by the SEBI but then there are regulated stock markets that make sure the shares are being traded in a fair manner. So, if you are investing and hoping for LTCG on shares of companies that are not listed in India, make sure to read about the regulatory body behind it.