Unlisted Shares in India: How They Work, Tax and Risks

Unlisted shares are shares of companies that are not traded on a stock exchange, so you buy them privately from an existing holder rather than through your broker’s order screen. Pre-IPO shares are simply unlisted shares of a company that is expected to list, which is why they attract most of the interest.

This guide explains who sells these shares, how the transfer into your demat works, how prices and dealer spreads are set, the six-month lock-in after an IPO, how gains are taxed, and the stamp duty you pay. It ends with a step-by-step process for buying more safely and a comparison table of listed and unlisted shares.

What unlisted and pre-IPO shares are

Every company has shareholders, but only listed companies have their shares quoted on an exchange. An unlisted company may be a large, profitable business that has simply not gone public yet, a subsidiary of a listed group, a former listed company that delisted, or a young startup.

Most unlisted shares today are held in dematerialised form, so they sit in a demat account just like listed shares. The difference is that there is no exchange order book. A buyer and a seller have to find each other, agree a price and move the shares through the depository themselves or through an intermediary.

“Pre-IPO” is a marketing label, not a legal category. A company may have filed a draft offer document with SEBI, or it may only be rumoured to be planning a listing. Some companies sold as pre-IPO stay unlisted for years.

Who sells unlisted shares

Supply comes from people and institutions who already own shares and want cash before (or instead of) an IPO. The common sellers are:

• Employees with ESOPs. Staff who exercised employee stock options often want to sell part of their holding to pay for a house, cover the tax on exercise, or simply diversify.
• Early investors. Angel investors, family offices and funds that invested years ago sometimes sell part of their stake to individuals.
• Legacy shareholders. Banks, financial institutions or individuals who have held shares for a long time, for example in older market-infrastructure or financial companies.
• Dealers and platforms. Intermediaries buy blocks from the sellers above, hold an inventory and resell smaller lots to retail buyers at a mark-up.

It helps to ask why a seller wants out. An employee needing cash is a neutral reason. An early investor quietly reducing exposure before a listing may know something about the valuation that you don’t.

How the transfer works

Because there is no exchange, the shares move by an off-market transfer between two demat accounts held with NSDL or CDSL, the two depositories. The usual sequence is:

1. You agree a quantity and price with the seller or dealer and receive a deal confirmation.
2. You share your demat details (DP ID and client ID) so the seller can send shares to your account.
3. Depending on the counterparty, you pay first and receive shares later, or the shares arrive first and you pay on receipt. This order matters a great deal, as explained in the risks section.
4. The seller’s depository participant processes an off-market delivery instruction, stating the consideration and the reason (sale). Stamp duty is collected at this stage.
5. The shares appear in your demat holdings, usually within one to a few working days. You can check this in your broker app and in the consolidated account statement from NSDL or CDSL.

Keep the deal note, bank transfer proof and the transfer record. You will need them to prove your purchase price and date when you sell.

How prices are set, and why spreads matter

There is no official price for an unlisted share. Quotes on dealer websites reflect what the dealer is willing to sell at, shaped by recent deals, the company’s latest annual results, valuations of listed peers and, above all, excitement about a possible IPO. Our guide on how to check the value of unlisted shares covers the valuation side in more detail.

The cost you rarely see is the spread: the gap between the price a dealer pays sellers and the price it charges buyers. On listed large caps this gap is a few paise. In unlisted shares it can be several percent or more.

Worked example: the cost of a spread

Suppose a dealer quotes a hypothetical unlisted company at ₹950 to buyers but offers only ₹850 to anyone who wants to sell back.

• Spread per share: ₹950 − ₹850 = ₹100
• As a share of your purchase price: ₹100 ÷ ₹950 = 10.5%
• On 200 shares bought for ₹1,90,000, an immediate resale would fetch ₹1,70,000, a ₹20,000 loss before any price move.

So the share has to rise about 11.8% (₹100 ÷ ₹850) from the dealer’s buying price just for you to break even. Always ask for both a buy and a sell quote before you commit.

A real reminder that grey-market prices can be wrong

NSDL, one of the two depositories, was a popular unlisted share for years. Reported unlisted prices touched about ₹1,275 before easing towards ₹1,025 near its IPO. The IPO, a pure offer for sale by existing shareholders, was priced at ₹800 and the shares listed on BSE on 6 August 2025. Buyers at the unlisted peak paid well above what IPO applicants paid. HDB Financial Services followed a similar pattern, as covered in our article on the risks of investing in unlisted shares.

The six-month lock-in after listing

Many buyers assume they can sell on listing day. Usually they cannot. Under Regulation 17 of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, the entire pre-issue share capital held by persons other than promoters is locked in for six months from the date of allotment in the IPO for a main-board listing. For SME exchange listings the lock-in is one year.

If you bought unlisted shares before the IPO, your shares are part of that pre-issue capital. They will show in your demat but marked as locked in, and you can sell only after the period ends. A few categories are treated differently, such as shares allotted to employees under ESOP schemes (covered by SEBI’s employee benefit regulations) and holdings of certain registered venture and alternative investment funds. Retail buyers should assume the full six months applies.

This matters because listing-day pops can fade. Your exit price depends on where the stock trades six months later, not on the opening tick.

How unlisted shares are taxed

Unlisted shares are taxed differently from listed equity, and the rules are less generous. Budget 2026 (1 February 2026) did not change capital gains rates, so the rules introduced from 23 July 2024 still apply. The Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026 with new section numbers, but the substance below is unchanged.

• Holding period: more than 24 months to qualify as long-term, against 12 months for listed shares.
• Long-term capital gains: 12.5% without indexation for transfers on or after 23 July 2024. There is no ₹1.25 lakh annual exemption; that applies only to listed equity and equity funds.
• Short-term capital gains: added to your income and taxed at your slab rate, which can be 30% plus surcharge and cess.
• Dividends: taxed at your slab rate.
• Return form: anyone who held unlisted equity shares at any time in the year cannot file ITR-1.

One more point: if you hold pre-IPO shares and the company lists, the shares become listed shares from then on. Gains on a sale after listing are taxed under the listed equity rules, with the holding period counted from your original purchase date. Check this with a tax adviser for your specific case.

Worked example: long-term vs short-term

Suppose Priya buys 200 unlisted shares at ₹900 each (₹1,80,000) and later sells them, still unlisted, at ₹1,300 each (₹2,60,000). Her gain is ₹80,000. We ignore the small stamp duty, which can be added to her cost.

• Sold after 30 months (long-term): ₹80,000 × 12.5% = ₹10,000, plus 4% cess of ₹400 = ₹10,400.
• Sold after 18 months (short-term), in the 30% slab: ₹80,000 × 30% = ₹24,000, plus 4% cess of ₹960 = ₹24,960.

Waiting past 24 months saves her ₹14,560 on this trade, assuming the price holds. Surcharge is ignored here for simplicity. For general ideas on lowering the bill, see our guide to reducing capital gains tax on shares.

Buying below fair market value: Section 56(2)(x)

If you buy unquoted shares for less than their fair market value (FMV), and the gap is more than ₹50,000, the whole gap is taxed in your hands as “income from other sources”. This was Section 56(2)(x) of the 1961 Act and is now Section 92(2)(m) of the Income-tax Act, 2025. FMV for unquoted shares is worked out under Rule 11UA, broadly from the company’s adjusted net asset value.

For example, if Rule 11UA values a share at ₹500 and you buy 1,000 shares at ₹400, the shortfall is ₹1,00,000, which is above ₹50,000, so the full ₹1,00,000 is taxable at your slab rate. The seller faces a matching rule (Section 50CA under the old Act) that treats FMV as the sale price. This mostly bites in family or employee deals at a discount; dealer prices for popular pre-IPO names are usually far above book-based FMV.

Stamp duty on the transfer

Since 1 July 2020, stamp duty on a transfer of shares in demat form is a uniform 0.015% of the consideration, paid by the buyer. For off-market transfers the depository collects it and passes it to the state government. On a ₹1,80,000 purchase that is ₹27. It is small, but make sure the deal note does not hide a larger “transfer charge” under this label.

Listed vs unlisted shares

Feature	Listed shares	Unlisted shares
Where you buy	Stock exchange via a registered broker	Privately, from a holder, dealer or platform
Price discovery	Live order book, visible to all	Dealer quotes and negotiated deals
Typical spread	Very small for large companies	Often several percent or more
Settlement	Exchange clearing, T+1	Off-market transfer; counterparty risk
Disclosure	Quarterly results, exchange filings	Annual filings with MCA, often delayed
Investor protection	SEBI and exchange grievance systems	None on unrecognised platforms
Long-term holding period	More than 12 months	More than 24 months
LTCG tax	12.5% above ₹1.25 lakh a year	12.5% on the full gain
STCG tax	20%	Slab rate
Exit after IPO	Not applicable	Six-month lock-in from allotment

How to buy unlisted shares safely: step by step

1. Decide the size first. Treat unlisted shares as a small satellite holding, money you could leave untouched for several years. Our piece on asset allocation explains how to set limits.
2. Read the company’s filings. Download the latest financial statements and annual return from the MCA portal, or the draft prospectus from SEBI’s website if one has been filed. Look at revenue, profit, debt and share count.
3. Value it against listed peers. Work out the implied market value (price × total shares) and compare its price-to-earnings multiple with listed rivals. Our P/E ratio guide shows how.
4. Check the counterparty. Prefer sellers who transfer shares before you pay, or use an escrow arrangement. Search the dealer’s name for complaints. Note that SEBI does not recognise any platform for trading unlisted securities.
5. Get two-way quotes. Ask what the dealer would pay you to buy the shares back today. The gap tells you your real entry cost.
6. Confirm transferability. Ask whether the shares are free of any lock-in or shareholder agreement restriction, and whether the ISIN is active.
7. Pay only to a bank account in the seller’s name that matches the deal note. Never pay in cash or to an individual’s account when dealing with a company.
8. Verify the credit. Check your demat holding and the depository statement, then file away the deal note, payment proof and transfer record for tax.

Comparing intermediaries? Our overview of platforms for buying unlisted shares explains what to look for.

Common mistakes

• Buying because an IPO is “coming soon” without checking whether a draft prospectus has even been filed.
• Assuming the unlisted price is a floor for the IPO price. It is not; IPOs are priced through institutional book-building.
• Forgetting the six-month lock-in and planning to sell on listing day.
• Paying in full before receiving shares from an unknown seller.
• Selling at 20 or 23 months and paying slab-rate tax when a short wait would have qualified for 12.5%.

FAQ

Is buying unlisted shares legal in India?

Yes, buying shares privately from an existing holder and taking an off-market transfer into your demat is legal. What SEBI has warned against is trading on electronic platforms that act like exchanges without recognition. In a June 2026 press release it said such platforms violate securities law and that investors using them get no SEBI or exchange protection.

Can I sell my pre-IPO shares on listing day?

Usually not. Pre-issue capital held by non-promoters is locked in for six months from the IPO allotment date on the main board. You can sell once the lock-in ends.

Do I get the ₹1.25 lakh LTCG exemption on unlisted shares?

No. That exemption is only for listed equity shares and equity-oriented funds. The full long-term gain on unlisted shares is taxed at 12.5%, plus cess.

How long does an off-market transfer take?

Once the seller’s depository participant accepts the instruction, the shares typically reach your demat within one to a few working days. Delays usually come from the seller’s side, so agree a deadline in writing.

How do I sell unlisted shares later?

You find a buyer yourself or sell back to a dealer, usually at its lower bid price, and transfer the shares off-market. If the company lists, you can sell on the exchange after any lock-in. There is no guarantee a buyer will exist at the price you want.