CBDT Gives a Direction on Taxability of Unlisted Shares

Income arising from the transfer of unlisted shares will now only be taxable under the head Capital Gain in order to maintain consistency and uniformity across all such transactions.

Earlier, it used to be a matter of confusion for both the taxpayers and the Income Tax Department so as to whether to treat it as Business Income or Capital Gain. But now the CBDT has provided a clear solution for the same through its circular issued on 2nd May 2016, according to which it will only be taxed under the head Capital Gain, irrespective of the period of holding of such unlisted shares.

However, the above-mentioned provision might not be applicable in the following cases and Assessing officer will take the appropriate view accordingly. The cases are:

  • Where the genuineness of transactions in unlisted shares is questionable, or

  • the transfer of unlisted shares is related to an issue pertaining to lifting of corporate veil, or

  • the transfer of unlisted shares is made along with the control and management of underlying business.

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