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    Home - Business - Understanding Tax in Private Market Investments: A Professional’s Guide by WWIPL
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    Understanding Tax in Private Market Investments: A Professional’s Guide by WWIPL

    Abizar AttariBy Abizar AttariMarch 18, 2025No Comments4 Mins Read
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    WWIPL
    Taxation and financial analysis in private market investments
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    Mumbai (Maharashtra) [India], March 18: When navigating private market investments, investors must grasp the tax implications. Investment funds have long been used to aggregate resources, but their inherent complexities necessitate strategic moves. As a result, investors must be aware of the major tax and non-tax implications of fund investments in order to manage their portfolios appropriately. A thorough understanding of the tax effects of specific finances can lead to more tax-efficient results. Effective planning includes examining how investment choices affect personal tax situations, ranging from initial contributions to holding periods and, finally, sale or exit plans.

    The private market is a financial arena where securities such as stocks and bonds are exchanged privately, rather than on public stock exchanges. Shares are often issued by private corporations rather than those listed on public exchanges. This special marketplace deals with unlisted shares, and whatever the trading mechanism, transactions involving these shares are liable to capital gains tax.

    Capital Gains Tax in the Private market

    Investing aims to earn a profit by selling assets that have increased in value. However, not all these profits escape taxes. According to the Income Tax Act, certain capital assets—like stocks, mutual funds, gold, and real estate—are subject to taxation. Capital gains are taxed according to specific rates in the Act. Taxes on unlisted shares are divided into long-term and short-term capital gains based on the holding period. Here’s an explanation by CA Niresh Maheshwari, Director of Wealth Wisdom India Pvt. Ltd. (WWIPL).

    Long-Term Capital Gain Tax: When an investor sells an unlisted stock after holding it for two years, the ensuing gain is referred to as Long-Term Capital Gain (LTCG). Long-Term Capital Gains (LTCG) that exceed Rs. 1.25 lakh in a financial year are subject to a 12.5% tax rate from 23rd July, 2024. For transfers made up to 22nd July, 2024, the tax rate of 10% will be applicable.This adjustment is consistent with the new budget’s streamlined approach, which decreases the holding period for an asset to qualify as long-term from three to two years for unlisted stocks, gold, and other assets. Taxpayers looking to minimise their LTCG tax burden can benefit from rollover options, provided they meet the necessary conditions.

    Short-Term Capital Gain Tax: When an investor sells unlisted stocks that have been held for up to two years, any profit from this sale is categorized as Short-Term Capital Gain (STCG). This gain is taxed according to the investor’s income tax bracket for that year and is included in their total taxable income. Unlike listed stocks, unlisted shares do not incur Securities Transaction Tax (STT), making the tax process for these transactions somewhat distinct.

    Buyback Tax – Starting October 1, 2024, the present 23.30% buyback tax was eliminated. Instead, owners will be taxed on a “deemed dividend” as per the provisions of Sec 2(22)(f) of the Income Tax  Act 1961, but will be unable to deduct any expenses from their dividend income. Shareholders may then record the cost of acquiring shares as a capital loss, which can be mitigated and carried forward against future capital profits.

    Income Tax filing 
    Investors are required to report profits from unlisted shares of companies registered under the Companies Act 2013, just like any other income. Long-Term Capital Gains (LTCG) and Short-Term Capital Gains (STCG) must be disclosed in the ‘Part A- General’ section of the Income Tax Return (ITR) form. Depending on their specific income sources and filing needs, individuals can use either the ITR-2 or ITR-3 forms to report earnings from unlisted shares.

    Foreign Investor Tax

    Announcing the changes, the finance minister had informed in her budget speech that the revised long-term capital gains tax (LTCG) for foreign portfolio investors will be 12.5 per cent from April 1, 2026.

    According to Niresh Maheshwari, Director, WWIPL, investing in private markets can present unique opportunities, but it demands careful thought and thorough research. Consulting a chartered accountant, financial expert, or advisor is crucial to grasp the tax implications and calculated risks associated with private markets for effective strategic planning. By staying informed and understanding how taxes affect unlisted shares, investors can confidently navigate these markets and optimise investment decisions.

    About Niresh Maheshwari : 

    Mr. Niresh Maheshwari is a Chartered Accountant by profession, since 2001. He additionally holds a Master’s degrée in Financial Administration from Devi Ahiya University Indore and is a member of the arbitration panel of the institute of Chartered Accountants of India. Mr. Maheshwari has great involvement with the capital market and banking area whereas independently handled debt syndication, M & A Activity, private equity transactions consultancy and advisory services for various corporate/SME clients worldwide. For more information, please visit: wwipl.com/about-wealth-wisdom

    If you have any objection to this press release content, kindly contact [email protected] to notify us. We will respond and rectify the situation in the next 24 hours.

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    Abizar Attari
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    I’ve always had a fascination with storytelling. Analyzing diverse perspectives and helping people understanding them simply is my life’s motto. I live to create stories that you’d love to read. When I’m not writing, you'll find me having a leisurely stroll on the beach or in the park.

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