# Tax on Sale of Unlisted Shares by Non Residents in India (2026)

> Source: https://krystal7.com/insights/tax-on-sale-of-unlisted-shares-by-non-residents
> Publisher: Krystal7 Consultants (Krystal7 Innovations Private Limited), Gurugram, India
> Author: CA Nandini
> Published: 03 Feb 2026; updated 24 Oct 2026
> Summary: Non residents pay 12.5 percent on long term gains from unlisted Indian shares held over 24 months, and 35 percent on short term gains if a company.

*Written by CA Nandini Hasija, Krystal7 Consultants. Last updated 23 October 2026.*

## AI Overview Summary

- A non resident selling unlisted Indian shares held for more than 24 months pays 12.5 percent on the long term gain under section 197 of the Income Tax Act, 2025, plus surcharge and cess.
- Short term gains on unlisted shares are taxed at normal rates, 35 percent for a foreign company, and the foreign currency method in section 72(6) still applies to them.
- The buyer, resident or not, must deduct tax under section 393(2), serial 17 on the sum chargeable, unless the seller holds a Form 128 lower deduction certificate.
- Mauritius and Singapore sellers are exempt in India on shares acquired before 1 Apr 2017 (Singapore subject to Article 24A); Dutch sellers pay only on a 10 percent holding sold to an Indian resident.
- A resident buyer cannot pay a non resident more than FEMA fair value and files Form FC-TRS within 60 days; the seller pays stamp duty of 0.015 percent.

**A non resident selling unlisted Indian shares held for more than 24 months pays 12.5 percent on the long term gain. Section 197 of the Income Tax Act, 2025 sets the rate. There is no indexation and no foreign currency benefit. Short term gains bear normal rates, 35 percent for a foreign company. Surcharge and 4 percent cess apply on top. The buyer withholds under section 393(2), and a treaty can remove the tax for some Mauritius, Singapore and Dutch sellers.**

This page covers the rates and holding period after the July 2024 changes, the computation and withholding. It also covers treaty protection, the buyer's fair value exposure and FEMA reporting. It ends with two worked sales, common mistakes and a checklist.

## How is a sale of unlisted Indian shares by a non resident taxed?

The gain is a capital gain charged in the tax year of transfer. Shares held for more than 24 months give a long term gain taxed at 12.5 percent under section 197. Shares held for 24 months or less give a short term gain taxed at normal rates. For a foreign company that is 35 percent. Surcharge and 4 percent cess apply on top.

India taxes the gain because the shares are of an Indian company, so the asset is situated in India. The seller's residence does not change that. What changes the answer is the treaty with the seller's home country, and whether the seller can document its claim.

The computation follows section 72 of the Income Tax Act, 2025, which replaced section 48 of the 1961 Act. The gain is the full value of consideration less transfer expenses and the cost of acquisition. Two special rules then apply to non residents. Section 197(4) switches off the foreign currency method for long term gains on unlisted shares. Section 79 can replace a low price with fair market value.

The Income Tax Act, 2025 took effect on 1 Apr 2026. A sale on or before 31 Mar 2026 stays under the Income Tax Act, 1961, with the same rates. This page carries a publish date of 3 Feb 2026 and states the law as on 23 Oct 2026.

## When do unlisted shares become long term?

Unlisted shares become long term when held for more than 24 months before the transfer. Section 2(101) of the Income Tax Act, 2025 defines a short term capital asset as one held for not more than 24 months. The 12 month test applies only to listed securities, equity oriented fund units and zero coupon bonds.

The [consolidated Act](https://www.incometaxindia.gov.in/documents/d/guest/income_tax_act_2025_as_amended_by_fa_act_2026-pdf) sets this in section 2(101)(a) and (b). Section 2(67) then defines a long term capital asset as one that is not short term. So a share held for 24 months and one day is long term.

The July 2024 changes did not move the test for unlisted shares. The Income Tax Department's [short term capital gains page](https://www.incometaxindia.gov.in/w/tax-on-short-term-capital-gains%E2%80%8B) says unlisted shares have a 24 month period whatever the transfer date. The 36 month period that applied to other assets before 23 Jul 2024 did not apply to unlisted shares.

Count the period from the date of allotment or purchase to the date of transfer. For shares allotted on conversion of compulsorily convertible preference shares or debentures, the holding period question needs care. We read the allotment date in the register and the FC-GPR or FC-TRS acknowledgement before we classify the gain.

## What rates apply after the July 2024 changes?

From 23 Jul 2024 long term gains on unlisted shares bear 12.5 percent for every seller, including non residents. Before that, a non resident paid 10 percent under section 112(1)(c)(iii) of the 1961 Act. Short term gains on unlisted shares follow normal rates. The foreign company rate fell from 40 percent to 35 percent.

The Budget speech of 23 Jul 2024 (paragraph 143) set 12.5 percent for long term gains on all financial and non financial assets. Paragraph 156 proposed cutting the foreign company rate "from 40 to 35 per cent". The [Memorandum to the Finance (No. 2) Bill, 2024](https://www.indiabudget.gov.in/budget2024-25/doc/memo.pdf) gave the capital gains changes effect from 23 Jul 2024.

| Seller and gain | Before 23 Jul 2024 (1961 Act) | From 23 Jul 2024 to 31 Mar 2026 (1961 Act) | From 1 Apr 2026 (2025 Act) |
|---|---|---|---|
| Foreign company, long term (over 24 months) | 10%, section 112(1)(c)(iii), no indexation, no foreign currency method | 12.5%, section 112, no indexation, no foreign currency method | 12.5%, section 197; section 197(4) excludes section 72(6) |
| Foreign company, short term | 40% | 35% from FY 2024-25 | 35% |
| Non resident individual, long term | 10%, section 112(1)(c)(iii) | 12.5% | 12.5%, section 197 |
| Non resident individual, short term | Slab rates | Slab rates | Slab rates |
| Surcharge, foreign company | 2% above INR 1 crore, 5% above INR 10 crore | Same | Same |
| Cess | 4% | 4% | 4% |

Section 196, the 20 percent short term rate, applies only to equity shares sold with securities transaction tax. An unlisted share sold off market has no securities transaction tax, so section 196 does not apply. Section 198, the 12.5 percent rate with the INR 1,25,000 exemption, also needs securities transaction tax. Neither helps a seller of unlisted shares.

A non resident individual is in the new tax regime under [section 202](https://www.incometaxindia.gov.in/w/section-202-78) unless it opts out. For that individual, surcharge follows the income bands of 10, 15 and 25 percent. Serial 10 of the table in section 3(4)(b) of the [Finance Act, 2026](https://egazette.gov.in/WriteReadData/2026/271439.pdf) sets a cap. Surcharge on the tax on capital gains under sections 196, 197 and 198 cannot exceed 15 percent. Short term gains on unlisted shares fall outside those sections, so they follow the slab rates and the normal bands. An individual who opts out of section 202 should read the surcharge table in section 3 for its own case.

The effective rate for a foreign company depends on its total Indian income in the year. With 4 percent cess, the three surcharge bands give these rates:

1. **Total Indian income up to INR 1 crore.** Long term 13 percent; short term 36.4 percent.
2. **Above INR 1 crore, up to INR 10 crore.** Long term 13.26 percent; short term 37.128 percent.
3. **Above INR 10 crore.** Long term 13.65 percent; short term 38.22 percent.

## How is the gain computed?

The gain is the full value of consideration, less transfer expenses, less the cost of acquisition, under section 72. A non resident's long term gain on unlisted shares is computed in rupees, without the foreign currency method. A short term gain on shares bought with foreign currency is still computed in that currency under section 72(6) and converted back.

[Section 72(6)](https://www.incometaxindia.gov.in/w/section-72-127) applies to a non resident's gains on shares or debentures of an Indian company. It converts cost, expenses and consideration into "the same foreign currency as was initially utilised in the purchase". The gain is then "reconverted into Indian currency". It excludes equity shares covered by section 198, which are listed shares sold with securities transaction tax.

[Section 197(4)](https://www.incometaxindia.gov.in/w/section-197-78) then switches the method off for long term gains. It covers a non resident or foreign company selling unlisted securities or shares of a closely held company. The long term gain is computed "without giving effect to the provisions under section 72(6)". So the foreign currency method survives only for short term gains on unlisted shares. A short term seller whose currency strengthened against the rupee can benefit from it.

Indexation is not available. Section 197(3) keeps indexation only for resident individuals and Hindu undivided families selling land or buildings acquired before 23 Jul 2024. A foreign company has no indexation on any asset.

Two deeming rules can raise the consideration:

1. **Section 79.** Where the price for a share that is not quoted is below its fair market value, that value becomes the consideration. [Section 79](https://www.incometaxindia.gov.in/w/section-79-119) replaced section 50CA of the 1961 Act.
2. **Section 80.** Where the consideration cannot be determined, fair market value on the date of transfer is the consideration. This matters in share swaps and earn outs. [Section 80](https://www.incometaxindia.gov.in/w/section-80-119) carries the old section 50D.

Fair market value for unquoted equity shares comes from rule 57 of the Income Tax Rules, 2026. The [rule 57 page](https://www.incometaxindia.gov.in/w/rule-57-4) gives an adjusted net asset formula. It takes book assets, replaces jewellery, art, shares and land with their market or stamp duty values, and deducts liabilities. The page lists sections 72 and 92 for this formula.

Deferred or contingent consideration has its own timing questions. Our guide to [deferred consideration and escrow in FDI share transfers](/insights/deferred-consideration-escrow-fdi-share-transfer) covers when each tranche is taxed.

## What tax does the buyer withhold?

The buyer deducts tax under section 393(2), serial 17 of the Income Tax Act, 2025 at the rates in force on the sum chargeable. Any buyer must deduct, including a non resident buyer with no presence in India. The seller can apply in Form 128 for a lower or nil deduction certificate. The buyer deposits the tax and issues Form 131.

Serial 17 covers "any other sum chargeable" paid to a non resident or a foreign company. Note 3(b) of the [section 393 table](https://www.incometaxindia.gov.in/w/section-393-6) extends the duty to all persons, resident or non resident. It applies whether or not the non resident payer has a residence, place of business or business connection in India. So a US buyer acquiring Indian shares from a UK seller must withhold Indian tax.

The sum chargeable is the gain, not the price. A buyer that does not know the seller's cost faces a choice. It can withhold on the whole price, which over deducts. Or it can rely on the seller's word, which risks section 398. The clean route is a Form 128 certificate under section 395(1). Our guide to the [lower deduction certificate](/insights/lower-tds-certificate-non-residents-form-128) covers the application.

| Step | Form or record | Who | Due date |
|---|---|---|---|
| Lower or nil deduction certificate | Form 128 (old Form 13) | Seller | Before payment |
| TAN for the buyer | Form 134 or 135 (old Form 49B) | Buyer, including a foreign buyer | Before deduction |
| Remittance information, for a payment from India | Form 145 (old Form 15CA) | Buyer | Before the bank remits |
| Accountant certificate | Form 146 (old Form 15CB) | Buyer's accountant | Before Form 145 Part C |
| Deposit of tax | Challan | Buyer | 7th of the next month; 30 April for March |
| Quarterly statement | Form 144 (old Form 27Q) | Buyer | 31 Jul, 31 Oct, 31 Jan, 31 May |
| Certificate to the seller | Form 131 (old Form 16A) | Buyer | Within 15 days of the Form 144 due date |

Form 131 is issued only where the seller is reported with a valid PAN. A seller without a PAN cannot easily claim the credit, so we get it a PAN before closing. Forms 94 to 96 replace old Forms 49A and 49AA. A foreign buyer needs a TAN before it deducts. Forms 145 and 146 apply only where the payment is remitted from India.

## Can a tax treaty reduce or remove the Indian tax?

Yes, for some sellers. Section 159 of the Income Tax Act, 2025 lets a non resident apply the treaty where it is more beneficial. Most of India's newer treaties let India tax gains on Indian shares in full. Mauritius and Singapore protect shares acquired before 1 Apr 2017. The Netherlands protects holdings below 10 percent and sales to non residents.

The seller needs a Tax Residency Certificate and, where the certificate lacks the prescribed details, Form 41 under section 159(8). Rule 75 lets Form 41 be filed once per tax year. Our guide to [Form 10F and the TRC](/insights/form-10f-and-tax-residency-certificate-india) covers both documents.

| Seller's country | Article | India's right to tax a gain on unlisted Indian shares | Main condition |
|---|---|---|---|
| United States | 13 | Full, under domestic law | None |
| United Kingdom | 14 | Full, under domestic law | None |
| Germany | 13(4) | Full | None |
| United Arab Emirates | 13(4) | Full | None |
| Mauritius | 13(3A), 13(4) | Shares acquired on or after 1 Apr 2017 only | Grandfathering for older shares; PPT under Article 27B from 13 Oct 2026 for other benefits |
| Singapore | 13(4A), 13(4B) | Shares acquired on or after 1 Apr 2017 only | Older shares must pass Article 24A |
| Netherlands | 13(5) | Only a holding of at least 10% sold to an Indian resident | Reorganisation exception; MLI PPT |

Sources: treaty texts and synthesised texts on incometaxindia.gov.in.

A treaty exemption does not remove the filings. The buyer still needs a basis to withhold nil, which in practice is a Form 128 certificate. The seller still files an Indian return to claim the exemption, on our reading. Our [India US DTAA guide](/insights/india-us-dtaa-for-companies) shows why a US seller pays full Indian tax.

## How do the Mauritius and Singapore protocols treat share sales?

Both treaties were amended in 2016 to let India tax gains on shares acquired on or after 1 Apr 2017. Shares acquired earlier stay taxable only in the seller's country. Gains between 1 Apr 2017 and 31 Mar 2019 bore half the Indian rate. Since 1 Apr 2019 India applies its full rate to post 2016 shares.

For Mauritius, Article 13(3A) lets India tax gains on "shares acquired on or after 1st April 2017". Article 13(4) leaves all other gains, including older shares, taxable only in Mauritius. The [treaty page](https://www.incometaxindia.gov.in/w/mauritius-comprehensive-agreements-1) records the 2016 protocol under S.O. 2680(E) of 10 Aug 2016. It entered into force on 19 Jul 2016.

For Singapore, the [synthesised text](https://www.incometaxindia.gov.in/w/singapore-synthesised-text-1) sets the same split in Article 13(4A) and 13(4B). Article 24A adds a limitation of benefits test for older shares. A Singapore company is a deemed shell if its annual operating expenditure in Singapore is below SGD 200,000. For an Article 13(4A) gain, the test applies to each 12 month period in the 24 months before the gain.

| Shares acquired | Gain arising | Mauritius treaty | Singapore treaty |
|---|---|---|---|
| Before 1 Apr 2017 | Any date | Mauritius only, Article 13(4) | Singapore only, Article 13(4A), if Article 24A is passed |
| On or after 1 Apr 2017 | 1 Apr 2017 to 31 Mar 2019 | India at up to 50% of its rate, Article 13(3B) | India at up to 50% of its rate, Article 13(4C) |
| On or after 1 Apr 2017 | From 1 Apr 2019 | India at full rate, Article 13(3A) | India at full rate, Article 13(4B) |

The Mauritius treaty changed again in 2026. S.O. 5611(E) of 13 Oct 2026 gives effect in India to a protocol from that date. It substitutes the preamble and adds Article 27B, a principal purpose test.

[CBDT Circular No. 01/2025](https://www.incometaxindia.gov.in/documents/d/guest/circular-1-2025-pdf) of 21 Jan 2025 says grandfathering under the Cyprus, Mauritius and Singapore treaties remains outside the principal purpose test. The treaty's own terms govern it instead. The circular predates Article 27B. On our reading it still covers the new article, because it speaks of the test under India's treaties generally, including tests added by bilateral protocol.

GAAR is the other limit. Rule 128(2) of the Income Tax Rules, 2026 applies GAAR to arrangements for a tax benefit obtained on or after 1 Apr 2017. Notification No. 55/2026 (G.S.R. 241(E) of 31 Mar 2026) substituted it from 1 Apr 2026. It excepts income from the transfer of investments made before 1 Apr 2017 by the same person. So a seller keeping pre 2017 shares in the same entity keeps the GAAR carve out.

In Tiger Global (2026 INSC 60, 15 Jan 2026) the Supreme Court allowed the revenue's appeals and set aside the Delhi High Court judgment. Commentators read the ruling as limiting reliance on a Tax Residency Certificate alone. Our note on the [Tiger Global ruling](/insights/tiger-global-supreme-court-ruling-treaty-benefits) sets out the facts. Our guides to the [Mauritius treaty](/insights/india-mauritius-dtaa-for-companies) and the [Singapore treaty](/insights/india-singapore-dtaa-for-companies) cover substance and documents.

## When is a Dutch seller exempt from Indian tax?

A Dutch resident's gain on Indian shares is taxable only in the Netherlands under Article 13(5), with one exception. India may tax the gain if the shares form part of at least a 10 percent holding and the buyer is an Indian resident. A qualifying reorganisation keeps even that gain in the Netherlands.

The [synthesised text](https://www.incometaxindia.gov.in/w/netherlands-synthesised-text-1) says India may tax a 10 percent holding "if the alienation takes place to a resident of that other State". The second proviso keeps gains from a "corporate organisation, reorganisation, amalgamation, division or similar transaction" in the Netherlands. The buyer or seller must own at least 10 percent of the other's capital.

The synthesised text carries this rule in Article 13(5) today. The Multilateral Instrument added a principal purpose test and a 365 day look back for land rich shares in Article 13(4). Unlike Mauritius and Singapore, the Netherlands is not named in Circular No. 01/2025 as having grandfathering. So the principal purpose test can reach every Dutch exit.

The buyer test makes the choice of buyer a tax decision:

1. **Dutch seller, holding below 10 percent.** No Indian tax, whoever buys.
2. **Dutch seller, 10 percent or more, foreign buyer.** No Indian tax under the treaty.
3. **Dutch seller, 10 percent or more, Indian buyer.** India taxes at domestic rates.
4. **Buyback by the Indian company.** The company is an Indian resident buyer, so India taxes a 10 percent holding, on our reading.

Our guide to the [India Netherlands DTAA](/insights/india-netherlands-dtaa-for-companies) covers the substance tests a Dutch holding company needs.

When the exit is a buyback by the Indian company, our guide to [buyback of shares by an Indian subsidiary](/insights/buyback-of-shares-indian-subsidiary-foreign-parent) covers the tax and filings.

## What does section 92(2)(m) mean for the buyer?

Section 92(2)(m) of the Income Tax Act, 2025 taxes a buyer who receives shares for less than their fair market value. The shortfall is income from other sources if it exceeds INR 50,000. Fair market value comes from rule 57. It replaced section 56(2)(x) of the 1961 Act and applies to resident and non resident buyers.

[Section 92(2)(m)(iii)](https://www.incometaxindia.gov.in/w/section-92-113) covers property other than immovable property. It applies to property received "for a consideration which is less than the aggregate fair market value of the property by an amount exceeding Rs. 50000". Shares are property for this clause. Section 92(3) excludes some receipts, such as gifts from relatives and transactions not treated as transfers under section 70(1).

So two income tax values sit on every unlisted share sale. Section 79 gives the seller a floor, and section 92(2)(m) taxes the buyer on a bargain. Section 92 uses the rule 57 net asset value, and on our reading section 79 does too. A price at or above that value avoids both issues.

The FEMA price runs beside them and can point the other way. FEMA uses a discounted cash flow or similar method, and the income tax rules use net assets. For an asset heavy company with weak forecasts, the FEMA value can sit below the rule 57 value. A resident buyer then cannot pay a non resident more than the FEMA value, but pays tax under section 92(2)(m) on the gap. We ask the valuer to compute both values before the parties agree a price.

For fresh share issues rather than transfers, our guide to [angel tax for foreign investors](/insights/angel-tax-abolished-foreign-investors) explains how section 92(2)(m) and FEMA fair value still apply.

## What FEMA rules apply to the price and the reporting?

FEMA tests the price only when one party is resident in India. A non resident selling to a resident cannot receive more than fair value under rule 21(2)(c) of the NDI Rules. A resident selling to a non resident cannot receive less. A sale between two non residents has no FEMA price test and no FC-TRS.

Rule 9(2) of the [NDI Rules](https://rbi.org.in/scripts/bs_viewcontent.aspx?Id=5083) lets a non resident sell to a resident subject to the pricing guidelines. Rule 9(1) covers sales between non residents, with prior government approval where the sector needs it. Paragraph 8.11 of the [Master Direction on Foreign Investment](https://www.rbi.org.in/scripts/bs_viewmasdirections.aspx?id=11200) limits the age of a valuation certificate. It "must not be more than ninety days old as on the date of the investment". We apply the same window to a transfer.

| Direction of sale | FEMA price test | Form FC-TRS | Who files | Other approvals |
|---|---|---|---|---|
| Non resident to resident | Not above fair value, rule 21(2)(c) | Yes, within 60 days | Resident buyer | None for most sectors |
| Resident to non resident | Not below fair value, rule 21(2)(b) | Yes, within 60 days | Resident seller | Entry route and sectoral cap; Press Note 3 for land border buyers |
| Non resident to non resident | None | No | Not applicable | Government approval where the sector needs it; Press Note 3 for land border buyers |

Regulation 4(3) of [FEMA 395/2019-RB](https://rbi.org.in/Scripts/NotificationUser.aspx?Id=11723&Mode=0) fixes the FC-TRS clock. It runs 60 days from the transfer or the receipt of funds, whichever is earlier. It requires a filing on every tranche of deferred consideration. Our guide to [share transfers between a resident and a non resident](/insights/share-transfer-resident-to-non-resident-fc-trs) covers the filing.

Stamp duty is 0.015 percent of the consideration on a transfer of shares. The transferor pays it under section 9A(1)(b) of the Indian Stamp Act, 1899. So the non resident seller bears it unless the agreement shifts it. For a demat transfer, the depository collects it.

## Does the non resident seller need to file an Indian return?

Yes, in most cases. A non resident with a capital gain chargeable in India files a return for the tax year of sale. Section 207(8) exempts a foreign company from filing only where its income is dividends and similar items taxed at the section 207 rates. Capital gains are outside it, on our reading. The return claims the Form 131 credit and any refund.

The return is where a treaty claim is made formally. A seller relying on Mauritius or Singapore grandfathering reports the gain and claims the exemption under section 159. It attaches nothing to the return itself, but holds the TRC, Form 41, share register extracts and proof of the acquisition date.

A foreign company that sold at a loss also files, to carry the loss forward. A capital loss can be set off only against capital gains. The return must be filed by the due date for the loss to carry forward.

## What if the seller sells the foreign holding company instead?

A sale of shares of a foreign company can be taxed in India if those shares derive their value substantially from Indian assets. Section 9 of the Income Tax Act, 2025 carries the indirect transfer rule from Explanation 5 to section 9(1)(i) of the 1961 Act. The Indian company reports such transfers in Form 163 (old Form 49D).

The treaty position for an indirect sale differs by country. A Dutch seller of a Dutch holding company is outside the Article 13(5) proviso on our reading. The shares sold are not of an Indian company. A US or UK seller faces domestic law. The Tiger Global case arose from an indirect transfer by Mauritius entities.

## Does transfer pricing apply to a sale between group companies?

Yes. A sale of Indian shares between associated enterprises, where either is a non resident, is an international transaction. The price must be at arm's length under sections 161 to 173 of the Income Tax Act, 2025. The seller files Form 48 (old Form 3CEB) with the accountant's report.

Group restructurings often move Indian shares from one foreign holding company to another. The arm's length price for unlisted shares is usually a valuation. We use the same valuation report for FEMA, section 79 and transfer pricing where the methods allow, and explain any difference in the file.

## What has happened since 3 February 2026?

This page carries a publish date of 3 Feb 2026. The Supreme Court had decided Tiger Global on 15 Jan 2026 and the Budget was presented on 1 Feb 2026. Five later events affect a non resident seller:

1. **20 Mar 2026.** The Income Tax Rules, 2026 were notified as G.S.R. 198(E), with rule 57 for fair market value.
2. **30 Mar 2026.** The Finance Act, 2026 (Act No. 4 of 2026) received assent. Section 197 still carries the 12.5 percent rate after it.
3. **31 Mar 2026.** Notification No. 55/2026 (G.S.R. 241(E)) substituted rule 128(2), the GAAR rule, from 1 Apr 2026. It keeps the carve out for pre 2017 investments.
4. **1 Apr 2026.** The Income Tax Act, 2025 came into force. Sections 72, 79, 92(2)(m), 197 and 393 replaced sections 48, 50CA, 56(2)(x), 112 and 195.
5. **13 Oct 2026.** India notified a protocol to the Mauritius treaty by S.O. 5611(E). It adds Article 27B and a new preamble from that date.

## What changed in 2026

| Old rule | New rule | Date | Instrument |
|---|---|---|---|
| Computation, section 48, first proviso foreign currency method | Section 72, with the method in section 72(6) | 1 Apr 2026 | Income Tax Act, 2025 |
| Long term rate, section 112 | Section 197; section 197(4) excludes section 72(6) | 1 Apr 2026 | Income Tax Act, 2025 |
| Fair market value as consideration, section 50CA | Section 79 | 1 Apr 2026 | Income Tax Act, 2025 |
| Buyer taxed on a bargain, section 56(2)(x) | Section 92(2)(m) | 1 Apr 2026 | Income Tax Act, 2025 |
| Valuation, rules 11UA and 11UAA | Rule 57 | 1 Apr 2026 | Income Tax Rules, 2026 |
| TDS on payments to non residents, section 195 | Section 393(2), serial 17 | 1 Apr 2026 | Income Tax Act, 2025 |
| Forms 13, 15CA, 15CB, 27Q, 16A | Forms 128, 145, 146, 144, 131 | 1 Apr 2026 | Income Tax Rules, 2026 |
| GAAR rule 10U | Rule 128, as substituted | 1 Apr 2026 | Notification No. 55/2026, G.S.R. 241(E) of 31 Mar 2026 |
| Conversion rates for the foreign currency method, rule 115A | Rule 52 | 1 Apr 2026 | Income Tax Rules, 2026 |
| Mauritius treaty without a principal purpose test | Article 27B and new preamble | 13 Oct 2026 | S.O. 5611(E) |

The rates themselves last changed on 23 Jul 2024, under the Finance (No. 2) Act, 2024. That Act moved the non resident long term rate on unlisted shares from 10 percent to 12.5 percent.

## Worked example

**Sale 1.** A Singapore company sells its whole stake in an unlisted Indian Private Limited company to an Indian company in December 2026. It holds 3,00,000 shares acquired in 2015 at INR 100 each and 1,00,000 shares acquired in 2021 at INR 400 each. The price is INR 1,000 per share. A Chartered Accountant certifies FEMA fair value at INR 1,050 within 90 days. The rule 57 value is INR 600. The figures are illustrative.

| Item | Working | INR |
|---|---|---|
| Consideration, 2015 shares | 3,00,000 × 1,000 | 30,00,00,000 |
| Cost, 2015 shares | 3,00,000 × 100 | 3,00,00,000 |
| Gain, 2015 shares | 30,00,00,000 minus 3,00,00,000 | 27,00,00,000 |
| Indian tax on 2015 shares | Article 13(4A), Singapore only, Article 24A passed | Nil |
| Consideration, 2021 shares | 1,00,000 × 1,000 | 10,00,00,000 |
| Cost, 2021 shares | 1,00,000 × 400 | 4,00,00,000 |
| Long term gain, 2021 shares | 10,00,00,000 minus 4,00,00,000 | 6,00,00,000 |
| Tax at 12.5% | 12.5% of 6,00,00,000 | 75,00,000 |
| Surcharge at 2% | Total Indian income above INR 1 crore, not above INR 10 crore | 1,50,000 |
| Cess at 4% | 4% of 76,50,000 | 3,06,000 |
| Indian tax on 2021 shares | | 79,56,000 |
| Stamp duty at 0.015%, paid by the seller | 0.015% of 40,00,00,000 | 60,000 |

The Singapore company obtains a Form 128 certificate for nil deduction on the 2015 shares and 13.26 percent on the 2021 shares. The Indian buyer withholds INR 79,56,000 and files Forms 145 and 146 before remitting. It then files Form FC-TRS within 60 days. The price of INR 1,000 is below the FEMA ceiling of INR 1,050 and above the rule 57 value of INR 600. So neither section 79 nor section 92(2)(m) applies.

The Article 24A test decides the outcome. Suppose the Singapore company spent SGD 260,000 in the first 12 months before the sale and SGD 150,000 in the second. It is a deemed shell, and the 2015 shares lose the exemption. The whole gain of INR 33,00,00,000 is then taxed in India. Tax at 12.5 percent is INR 4,12,50,000, surcharge at 5 percent INR 20,62,500 and cess INR 17,32,500. The total is INR 4,50,45,000.

**Sale 2.** A US company sells 1,00,000 unlisted Indian shares to another US company in March 2027, 18 months after buying them. It paid USD 6,00,000 when one US dollar was INR 83. It sells for USD 9,00,000 when one US dollar is INR 88. We use one illustrative rate per date.

[Rule 52](https://www.incometaxindia.gov.in/w/rule-52-5) of the Income Tax Rules, 2026 prescribes the actual rates. Cost, expenses and consideration convert at the average of the telegraphic transfer buying and selling rates. Cost uses the acquisition date, and the other two use the transfer date. The gain converts back at the telegraphic transfer buying rate on the transfer date.

| Item | Rupee computation | Foreign currency method, section 72(6) |
|---|---|---|
| Consideration | USD 9,00,000 × 88 = INR 7,92,00,000 | USD 9,00,000 |
| Cost | USD 6,00,000 × 83 = INR 4,98,00,000 | USD 6,00,000 |
| Gain | INR 2,94,00,000 | USD 3,00,000 × 88 = INR 2,64,00,000 |
| Short term rate with 2% surcharge and 4% cess | 37.128% | 37.128% |
| Tax | INR 1,09,15,632 | INR 98,01,792 |

The gain is short term, so section 72(6) applies and the taxable gain is INR 2,64,00,000. The tax is INR 98,01,792. Had the US company waited until after 24 months, the gain would be long term. Section 197(4) would then require the rupee computation, at 13.26 percent.

The US buyer must withhold Indian tax under section 393(2), serial 17, even though it pays in the US. It needs a TAN, deposits the tax, files Form 144 and issues Form 131. No FC-TRS is due, because both parties are non residents. The US treaty leaves the gain to Indian law under Article 13, so no treaty relief applies.

## Common mistakes

1. **Treating unlisted shares as long term after 12 months.** The 12 month test is for listed securities. Fix: count 24 months from allotment or purchase for unlisted shares.
2. **Applying the foreign currency method to a long term gain.** Section 197(4) switches it off. Fix: compute long term gains in rupees and use section 72(6) only for short term gains.
3. **A foreign buyer that does not withhold.** Note 3(b) to serial 17 makes every payer liable. Fix: obtain a TAN and withhold, or have the seller obtain a Form 128 certificate.
4. **Withholding on the price instead of the gain.** The duty is on the sum chargeable. Fix: get cost evidence or a Form 128 certificate before closing.
5. **Assuming grandfathering covers later shares.** Bonus, rights and conversion shares issued after 31 Mar 2017 raise their own acquisition date question. Fix: map every lot to its allotment date.
6. **Ignoring Article 24A for a Singapore seller.** A low spending year makes the company a deemed shell. Fix: test expenditure in each 12 month period of the 24 months before the sale.
7. **Picking an Indian buyer for a Dutch 10 percent holding.** Article 13(5) taxes only a sale to an Indian resident. Fix: decide the buyer with the tax result in view.
8. **Pricing between the FEMA and rule 57 values without checking both.** The buyer may face section 92(2)(m). Fix: compute both values before agreeing the price.
9. **Skipping the Indian return because tax was withheld.** Capital gains are outside section 207(8). Fix: file the return for the tax year of sale.
10. **Missing FC-TRS on a sale to a resident.** The resident buyer files it. Fix: diarise 60 days from the earlier of transfer and payment.

For the transfer documents and filings, see our [share transfer service](/services/share-transfer.html).

## Checklist

1. Confirm the seller's residence and obtain its Tax Residency Certificate and Form 41.
2. Map every lot of shares to its acquisition date and cost.
3. Classify each lot as long term or short term on the 24 month test.
4. Identify the treaty article and any grandfathering or holding condition.
5. Test substance: Article 24A for Singapore, the principal purpose test, and GAAR under rule 128.
6. Obtain the FEMA fair value certificate within 90 days if one party is resident.
7. Compute the rule 57 value and check sections 79 and 92(2)(m).
8. Compute the gain, using section 72(6) only for short term gains on shares bought in foreign currency.
9. Apply for a Form 128 certificate where the treaty or the gain supports a lower rate.
10. Obtain a PAN for the seller and a TAN for the buyer.
11. Withhold under section 393(2), serial 17 and deposit by the 7th of the next month.
12. File Forms 145 and 146 before any remittance from India.
13. Pay stamp duty at 0.015 percent on the transfer.
14. File Form FC-TRS within 60 days where one party is resident.
15. File Form 144 for the quarter and issue Form 131 to the seller.
16. File the seller's Indian return for the tax year of sale.

## Key terms

- **Short term capital asset**: Under section 2(101) of the Income Tax Act, 2025, a capital asset held for not more than 24 months before transfer. Listed securities, UTI units, equity oriented fund units and zero coupon bonds use 12 months. Unlisted shares use the 24 month test, so they become long term after 24 months. (https://krystal7.com/glossary#short-term-capital-asset)
- **Form FC-TRS**: The report on the FIRMS portal of a transfer of equity instruments between a resident and a person resident outside India. The resident party files it through its AD bank within 60 days of the transfer or of receiving the funds, whichever is earlier, under regulation 4(3) of FEMA 395/2019-RB. Deferred consideration needs a filing on every tranche. (https://krystal7.com/glossary#form-fc-trs)
- **Tax Residency Certificate (TRC)**: A TRC is the certificate a payee's home tax authority issues to confirm its tax residence there for a period. Section 159(8)(a) of the Income Tax Act, 2025 makes it a condition for treaty relief in India, alongside Form 41. An Indian resident applies for one in Form 42 and receives it in Form 43. (https://krystal7.com/glossary#tax-residency-certificate)
- **Form 128 (old Form 13)**: Form 128 is the application a payee makes under section 395 of the Income Tax Act, 2025 for a certificate allowing tax to be deducted at a lower rate or not at all. It replaced Form 13 from 1 Apr 2026. A payment covered by such a certificate goes in Part B of Form 145, with no Form 146. (https://krystal7.com/glossary#form-128-old-form-13)
- **Grandfathering (Mauritius and Singapore treaties)**: The rule in Article 13(4) of the India Mauritius treaty and Article 13(4A) of the India Singapore treaty that keeps gains on Indian shares acquired before 1 Apr 2017 taxable only in the seller's home country. Singapore claims must also pass the Article 24A limitation of benefits test. (https://krystal7.com/glossary#grandfathering-mauritius-and-singapore-treaties)
- **Principal Purpose Test (PPT)**: The PPT is the anti abuse rule that the OECD Multilateral Instrument adds to covered Indian tax treaties. It denies a treaty benefit where obtaining it was one of the principal purposes of an arrangement, unless granting it matches the object and purpose of the treaty. CBDT Circular No. 01/2025 of 21 Jan 2025 guides officers on applying it. (https://krystal7.com/glossary#principal-purpose-test)
- **Fair market value of unquoted shares (rule 57)**: The value set by rule 57 of the Income Tax Rules, 2026 using an adjusted net asset formula. It replaces rule 11UA. It tests whether a buyer has income under section 92(2)(m) and, on the usual reading, sets the seller's deemed consideration under section 79. (https://krystal7.com/glossary#fair-market-value-of-unquoted-shares-rule-57)

## Frequently Asked Questions

### What is the tax rate on sale of unlisted shares by a non resident?

Section 197 of the Income Tax Act, 2025 taxes a long term gain at 12.5 percent. That covers unlisted shares held for more than 24 months. A short term gain is taxed at normal rates, 35 percent for a foreign company. Surcharge and 4 percent cess apply on top of both.

### How long must unlisted shares be held to be long term?

More than 24 months before the transfer. Section 2(101) of the Income Tax Act, 2025 treats an asset held for 24 months or less as short term. The 12 month test applies only to listed securities and some fund units. The July 2024 changes did not alter the period for unlisted shares.

### Do non residents get indexation or a foreign currency benefit on unlisted shares?

No indexation is available to a non resident. Section 197(4) computes a long term gain on unlisted shares without the foreign currency method in section 72(6). That method still applies to a short term gain on shares bought with foreign currency, so the gain is computed in that currency.

### Who deducts tax when a non resident sells unlisted Indian shares?

The buyer deducts under section 393(2), serial 17 of the Income Tax Act, 2025, at the rates in force on the sum chargeable. The duty covers every buyer, resident or non resident. The buyer deposits the tax, files Form 144 and issues Form 131 to the seller.

### Does a foreign buyer have to deduct Indian tax?

Yes. Note 3(b) to serial 17 of the section 393(2) table extends the duty to all persons, resident or non resident. It applies even if the buyer has no residence, place of business or business connection in India. The foreign buyer needs a TAN to deposit the tax.

### Can the seller get a lower TDS certificate?

Yes. The seller applies in Form 128 under section 395(1) of the Income Tax Act, 2025. The Assessing Officer certifies a lower or nil rate based on the gain and any treaty claim. The buyer then withholds at the certified rate. A certificate is the safest basis for a nil deduction.

### Is a Mauritius company taxed in India on a sale of Indian shares?

Only on shares acquired on or after 1 Apr 2017, under Article 13(3A) of the treaty. Older shares are taxable only in Mauritius under Article 13(4). From 13 Oct 2026, S.O. 5611(E) adds a principal purpose test. CBDT Circular No. 01/2025 says grandfathering stays outside the test, and on our reading that covers Article 27B.

### Is a Singapore company exempt from Indian tax on share sales?

On shares acquired before 1 Apr 2017, yes, under Article 13(4A), if it passes Article 24A. It must not be a shell or conduit and must spend at least SGD 200,000 a year in Singapore in each test period. Shares acquired from 1 Apr 2017 are taxable in India under Article 13(4B).

### When does the India Netherlands treaty exempt a share sale?

Article 13(5) exempts the gain unless the shares form at least a 10 percent holding and the buyer is an Indian resident. A Dutch seller of any size selling to a foreign buyer pays no Indian tax under the treaty. A qualifying reorganisation is exempt even with an Indian buyer.

### Do US and UK sellers get any treaty relief on capital gains?

No. Article 13 of the India US treaty and Article 14 of the India UK treaty let each country tax capital gains under its own law. India taxes the gain at domestic rates. The seller claims a foreign tax credit at home, under that country's rules.

### What is section 92(2)(m) and how does it affect the buyer?

Section 92(2)(m) of the Income Tax Act, 2025 taxes a buyer who receives shares below fair market value. It applies where the shortfall exceeds INR 50,000. Fair market value comes from rule 57. It replaced section 56(2)(x) and applies to resident and non resident buyers.

### What price can a non resident sell at under FEMA?

To a resident buyer, not more than fair value under rule 21(2)(c) of the NDI Rules. A Chartered Accountant, SEBI registered merchant banker or practising cost accountant certifies the value. The certificate must not be more than 90 days old. A sale to another non resident has no FEMA price test.

### Is Form FC-TRS needed when one non resident sells to another?

No. Regulation 4(3) of FEMA 395/2019-RB requires Form FC-TRS only for transfers between a resident and a non resident. A sale between two non residents falls under rule 9(1) of the NDI Rules. It needs government approval only where the sector requires it.

### Who pays stamp duty on the transfer?

The seller pays. Section 9A(1)(b) of the Indian Stamp Act, 1899 places the duty of 0.015 percent of the consideration on the transferor. For a demat transfer, the depository collects it. The agreement can shift the cost to the buyer commercially.

### Must a non resident seller file an Indian income tax return?

Yes, on our reading. Section 207(8) of the Income Tax Act, 2025 excuses a foreign company only where its income is dividends and similar section 207 items. Capital gains are outside it. The return claims the Form 131 credit, any refund and any treaty exemption.

### Does GAAR apply to a sale of grandfathered shares?

Not to income from investments made before 1 Apr 2017 by the same person. Rule 128(2) of the Income Tax Rules, 2026, as substituted by Notification No. 55/2026, keeps that carve out. A later restructuring that moves the shares to a new entity can lose it.

## Sources

- Income Tax Department, Income Tax Act, 2025, section 197, https://www.incometaxindia.gov.in/w/section-197-78
- Income Tax Department, Income Tax Act, 2025, section 198, https://www.incometaxindia.gov.in/w/section-198-76
- Income Tax Department, Income Tax Act, 2025, section 196, https://www.incometaxindia.gov.in/w/section-196-78
- Income Tax Department, Income Tax Act, 2025, section 72, https://www.incometaxindia.gov.in/w/section-72-127
- Income Tax Department, Income Tax Act, 2025, sections 79 and 80, https://www.incometaxindia.gov.in/w/section-79-119 and https://www.incometaxindia.gov.in/w/section-80-119
- Income Tax Department, Income Tax Act, 2025, section 92, https://www.incometaxindia.gov.in/w/section-92-113
- Income Tax Department, Income Tax Act, 2025, section 393, https://www.incometaxindia.gov.in/w/section-393-6
- Income Tax Department, Income Tax Rules, 2026, rule 57, https://www.incometaxindia.gov.in/w/rule-57-4
- Income Tax Department, Income Tax Rules, 2026, rule 52 (rate of exchange for capital gains under section 72), https://www.incometaxindia.gov.in/w/rule-52-5
- Income Tax Department, Income Tax Act, 2025, section 202 (new tax regime), https://www.incometaxindia.gov.in/w/section-202-78
- Ministry of Law and Justice, The Finance Act, 2026 (No. 4 of 2026), assent 30 Mar 2026, section 3(4)(b), Gazette of India Extraordinary CG-DL-E-31032026-271439, https://egazette.gov.in/WriteReadData/2026/271439.pdf
- Gazette of India, The Finance Bill, 2026 (Bill No. 3 of 2026) as introduced on 1 Feb 2026, clause 3(4)(b), https://egazette.gov.in/WriteReadData/2026/269757.pdf
- Income Tax Department, Income Tax Act, 2025 as amended by the Finance Act, 2026 (section 2), https://www.incometaxindia.gov.in/documents/d/guest/income_tax_act_2025_as_amended_by_fa_act_2026-pdf
- Income Tax Department, Tax on short term capital gains, https://www.incometaxindia.gov.in/w/tax-on-short-term-capital-gains%E2%80%8B
- Ministry of Finance, Budget Speech 2024-25, 23 Jul 2024, paragraphs 143 and 156, https://www.indiabudget.gov.in/budget2024-25/doc/budget_speech.pdf
- Ministry of Finance, Memorandum explaining the provisions in the Finance (No. 2) Bill, 2024, https://www.indiabudget.gov.in/budget2024-25/doc/memo.pdf
- Income Tax Department, India Mauritius DTAA, S.O. 2680(E) of 10 Aug 2016 and S.O. 5611(E) of 13 Oct 2026, https://www.incometaxindia.gov.in/w/mauritius-comprehensive-agreements-1
- Income Tax Department, India Singapore DTAA, synthesised text, https://www.incometaxindia.gov.in/w/singapore-synthesised-text-1
- Income Tax Department, India Netherlands DTAA, synthesised text, https://www.incometaxindia.gov.in/w/netherlands-synthesised-text-1
- CBDT, Circular No. 01/2025, 21 Jan 2025, https://www.incometaxindia.gov.in/documents/d/guest/circular-1-2025-pdf
- CBDT, Notification No. 55/2026, G.S.R. 241(E) of 31 Mar 2026, Income Tax (Amendment) Rules, 2026, https://www.incometaxindia.gov.in/documents/d/guest/notification-no-55-2026-1-pdf
- Supreme Court of India, Authority for Advance Rulings (Income Tax) v Tiger Global International II Holdings, 2026 INSC 60, 15 Jan 2026, https://api.sci.gov.in/supremecourt/2025/1251/1251_2025_7_1501_67552_Judgement_15-Jan-2026.pdf
- Reserve Bank of India, Foreign Exchange Management (Non Debt Instruments) Rules, 2019, updated up to 2 Sep 2026, https://rbi.org.in/scripts/bs_viewcontent.aspx?Id=5083
- Reserve Bank of India, Master Direction on Foreign Investment in India, updated up to 15 Jun 2026, https://www.rbi.org.in/scripts/bs_viewmasdirections.aspx?id=11200
- Reserve Bank of India, Foreign Exchange Management (Mode of Payment and Reporting of Non Debt Instruments) Regulations, 2019, https://rbi.org.in/Scripts/NotificationUser.aspx?Id=11723&Mode=0

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