NRI Tax on Selling Unlisted Indian Shares in 2026

You sold startup shares two years ago and the buyer deposited less than you expected because they deducted TDS. Or you are about to sell and the buyer is asking you for a TDS certificate. Either way, the unlisted share sale process for NRIs has several compliance steps that are easy to miss and expensive to get wrong.

Unlike listed shares sold on a stock exchange, unlisted share transactions happen privately. There is no exchange mechanism to handle TDS. The entire compliance burden falls on the contracting parties, with no automatic safety net.

The 30-second answer: NRIs selling unlisted Indian shares held for more than 24 months pay LTCG tax at 12.5% (no indexation, post July 23, 2024). Shares held 24 months or less attract STCG taxed at slab rate, which for most NRIs is 30%. The buyer, not the seller, must deduct TDS under Section 195 before payment. If the buyer fails to deduct, they become an assessee in default. The seller cannot legally repatriate proceeds abroad without Form 15CA/15CB from a chartered accountant. If you are selling to a related party or an overseas entity at below fair market value, Section 50CA and Section 56(2)(x) both come into play and can result in a higher deemed sale price than what you actually received.

The capital gains rates that apply in 2026

The Finance (No. 2) Act 2024, effective from 23 July 2024, restructured capital gains rates across asset classes. For unlisted shares, the changes are:

Long-term capital gains (LTCG): Shares held for more than 24 months qualify as long-term assets. The tax rate is 12.5% under Section 112, without indexation. Previously, the rate was 20% with indexation. Shares sold before 23 July 2024 were taxed at the old rates. Shares sold on or after that date are taxed at 12.5% without indexation, even if most of the holding period pre-dates the law change.

Short-term capital gains (STCG): Shares held 24 months or less are short-term. There is no special rate for unlisted shares under STCG. The gain is added to total income and taxed at the applicable slab rate. For most NRIs, this is the 30% slab, before surcharge and cess.

Surcharge: NRI income above Rs 50 lakh attracts surcharge. For LTCG on unlisted shares, surcharge is capped at 15% of the base tax. For STCG (which is slab-rated), the normal surcharge slabs apply (10% above Rs 50 lakh, 15% above Rs 1 crore, 25% above Rs 2 crore, 37% above Rs 5 crore). Health and education cess of 4% applies on top of tax plus surcharge.

Practical effective rates:

Holding period	Base rate	With 15% surcharge + 4% cess
More than 24 months (LTCG)	12.5%	~14.95%
24 months or less (STCG)	30% slab	~35.88% (10% surcharge bracket)

The holding period is counted from the date of acquisition to the date of transfer (the date the shares are transferred, not the date of payment).

How TDS works on unlisted share sales: the buyer's problem

Most NRI sellers focus on their tax liability. The more immediate cash-flow issue is the TDS obligation that falls on the buyer.

Under Section 195, any person making a payment to a non-resident that constitutes income chargeable to tax in India must deduct TDS at the rates in force before making payment. There is no minimum threshold. Even a partial payment triggers the obligation.

For unlisted share purchases from NRIs:

• LTCG transactions: buyer deducts TDS at 12.5% plus applicable surcharge and cess on the capital gain portion (not on the full sale price, but on the gain).
• STCG transactions: buyer deducts TDS at 30% plus surcharge and cess on the full short-term capital gain.

The mechanics are important here. The buyer deducts TDS on the gain, not on the gross sale price. To compute the TDS correctly, the buyer must know your cost of acquisition and holding period. In practice, you will need to share these details with the buyer, and the buyer should ideally obtain a CA's opinion or apply for a lower TDS certificate under Section 197 if the actual tax is expected to be lower.

What the buyer must do

1. Obtain a TAN (Tax Deduction Account Number) from the Income Tax Department before making the first payment.
2. Deduct TDS at the applicable rate at the time of credit or payment, whichever is earlier.
3. Deposit TDS with the government by the 7th of the month following deduction (or 30 April for deductions in March).
4. File Form 27Q (the TDS return for non-resident payees) quarterly.
5. Issue Form 16A (TDS certificate) to the seller within 15 days of the due date for filing Form 27Q.

If the buyer fails at any of these steps, Section 201 makes the buyer an "assessee in default." Interest at 1% per month accrues from the date TDS should have been deducted, and 1.5% per month from the date it should have been deposited to the actual deposit date. The disallowance under Section 40(a)(i) also means the buyer cannot deduct the purchase price as a business expense (if it is a business transaction).

The seller is not off the hook entirely. If TDS has not been deducted and you have not paid advance tax on the gain, interest under Sections 234B and 234C applies to you as well.

Applying for a lower TDS certificate: Section 197

If your actual tax liability on the gain is lower than the standard TDS rate, you can apply for a lower or nil TDS certificate under Section 197.

This is particularly relevant when:

• You have significant capital losses available to set off against the gain.
• You qualify for an exemption under Section 54F (reinvestment in residential property).
• The effective gain after indexation (for pre-July 2024 transactions) would result in a lower tax.
• You are claiming DTAA benefits that reduce your Indian tax liability.

Process: File the application on the TRACES portal (Online Application for Lower Deduction under Section 197). The Assessing Officer reviews the application. Processing typically takes four to six weeks, though timelines vary. The certificate specifies either a nil rate or a reduced rate, valid for the financial year.

Critical timing: The buyer can only apply the lower rate if they have the certificate before they make payment. If you are planning to sell, apply for the certificate well before the transaction closes. A delayed certificate means the buyer deducts at the full rate, and you recover the excess only by filing your ITR and waiting for a refund, which can take six to eighteen months.

See the guide on lower TDS certificate applications for the step-by-step process.

The FMV problem: Section 50CA and Section 56(2)(x)

Unlisted share transactions are particularly prone to two related anti-avoidance provisions.

Section 50CA: seller's deemed sale consideration

If you sell unlisted shares at a price below fair market value (FMV), the Income Tax Act deems the sale consideration to be the FMV. Your capital gain is computed on the higher FMV, not on the lower actual price you received.

FMV for unlisted shares is determined under Rule 11UA: broadly the NAV (net asset value) method using the latest audited balance sheet of the company. A merchant banker's valuation report is required for non-book-value approaches.

This matters when:

• You are selling to a related party at a concessional price.
• The company is in financial difficulty and you accept a distressed price.
• You are transferring shares to a holding structure overseas.

Section 56(2)(x): buyer's deemed income

If the buyer acquires shares at a price more than Rs 50,000 below FMV, the shortfall is taxed as income in the buyer's hands under "Income from other sources." This is the flip side of Section 50CA and creates tax exposure for the buyer, not just the seller.

Both provisions mean that in any related-party or below-market transaction, the tax authorities have two bites at the apple: the seller is taxed on a higher deemed gain, and the buyer is taxed on deemed income.

Practical advice: For any unlisted share sale to a related party or overseas entity, obtain a valuation report from a registered merchant banker or CA before the transaction. Document it properly. The cost of a valuation (typically Rs 25,000 to Rs 1,50,000 depending on company size) is trivial compared to the tax exposure.

Startup equity: the SEBI Safe Harbour

The SEBI (Issue of Capital and Disclosure Requirements) Regulations include a safe harbour for transfers of shares in certain startup entities. Specifically, for DPIIT-recognised startups and shares transferred between certain categories of investors (founders, angel investors, VCs), the SEBI framework acknowledges that negotiated pricing may differ from strict NAV-based FMV calculations.

The Income Tax Act's Section 56(2)(viib) was amended by the Finance Act 2023 to exclude DPIIT-recognised startups from the "angel tax" provisions (where excess consideration over FMV was taxed in the startup's hands). The Finance Act 2024 further extended this to foreign investors for DPIIT-recognised startups.

However, this does not fully exempt NRI sellers from Sections 50CA or 56(2)(x). The safe harbour for startups applies primarily to the company receiving consideration for fresh issue of shares, not to secondary sales by NRI shareholders.

For NRIs selling shares in DPIIT-recognised startups in secondary transactions, the position is:

• If you sell at FMV or above, Sections 50CA and 56(2)(x) do not trigger.
• If you sell below FMV to a non-related party at arms-length, the Rs 50,000 tolerance under Section 56(2)(x) provides some protection to the buyer.
• Related-party transactions at below FMV remain problematic regardless of DPIIT status.

A startup-specific valuation by a Category I merchant banker (as prescribed under SEBI rules) is the safest approach for documenting FMV in startup share transfers.

See the guide on NRI and startup ESOP taxation for the specific ESOP-related rules.

NRI selling to another NRI: same obligations apply

A common misconception is that NRI-to-NRI transactions have lighter compliance requirements. They do not. The buyer's TDS obligation under Section 195 is triggered by the nature of the payee (an NRI) and the nature of the payment (income chargeable to tax in India). It does not matter whether the buyer is a resident Indian or an NRI.

The buying NRI must:

• Obtain an Indian TAN (Tax Deduction Account Number).
• Deduct TDS before payment.
• File Form 27Q (not Form 26Q, which is for resident payees).

This creates a practical problem. Many NRIs do not have a TAN and are not registered in India's TDS infrastructure. Obtaining a TAN requires an application to the Income Tax Department and takes one to two weeks. The transaction cannot close until the buyer has a TAN.

The selling NRI also cannot repatriate the proceeds until the 15CA/15CB compliance is completed, which requires confirmation that TDS has been deducted or that no TDS was required.

15CA and 15CB: the repatriation gateway

Form 15CA is a declaration filed by the remitter (in this context, the buyer making payment to you as the NRI seller, or your Indian bank on your behalf) confirming that the remittance is either not chargeable to tax, or that tax has been deducted.

Form 15CB is a certificate from a chartered accountant confirming the nature of the remittance, the applicable rate of tax, and that TDS has been deducted correctly.

For unlisted share sale proceeds:

• If the amount being remitted exceeds Rs 5 lakh in a financial year, Form 15CA (Part C) and Form 15CB are required before the bank will process the remittance.
• The CA who signs Form 15CB must review the transaction documents: the sale agreement, evidence of cost of acquisition, proof of holding period, TDS challan showing deposit, and your ITR if available.
• Form 15CA is filed online on the income tax portal. Form 15CB is in a prescribed format.

The bank will not remit without these forms. If you try to receive the money in your NRO account first and then repatriate from NRO, Form 15CA/15CB is still required for the repatriation step. See the guides on NRO/NRE/FCNR accounts and reducing NRO TDS for the account-level context.

Secondary market platforms: TDS compliance in practice

Platforms like Altius Investech and UnlistedArena facilitate secondary market transactions in unlisted shares. They connect buyers and sellers and in some cases handle the paperwork. However, these platforms are intermediaries, not the buyer, and the TDS obligation rests on the actual buyer.

In practice, compliance varies:

• Some platforms route transactions through a Special Purpose Vehicle (SPV) or an NBFC that acts as the buyer, in which case that entity has the TAN and handles TDS.
• In peer-to-peer transactions facilitated by the platform, the individual buyer must handle TDS. Many retail buyers on these platforms are unaware of their TDS obligations, particularly when buying from NRIs.
• If you are an NRI seller using one of these platforms, confirm explicitly whether the platform or the buyer is handling TDS. Get it in writing. If TDS is not deducted, you face a refund process after filing ITR; the buyer faces penalties.

The Income Tax Department has been increasing scrutiny of unlisted share transactions, particularly since these transactions must now be reported in the Annual Information Statement (AIS) by companies when they file their annual return with the Registrar of Companies. Mismatches between what the company reports and what appears in ITRs trigger notices.

See the guide on responding to NRI tax notices if you have received a notice related to an unlisted share transaction.

Worked example: NRI selling startup shares

Scenario: You are a non-resident Indian based in the United States. You received shares of an Indian startup (a DPIIT-recognised private limited company) as part of an early-stage investment in April 2022. You acquired 1,00,000 shares at Rs 5 per share, for a total cost of Rs 5,00,000.

In May 2026 (four years later), you sell all 1,00,000 shares to a new investor at Rs 50 per share, for total consideration of Rs 50,00,000.

Step 1: Determine holding period

Acquisition: April 2022. Sale: May 2026. Holding period: over 24 months. The shares are long-term capital assets.

Step 2: Compute the capital gain

Sale consideration: Rs 50,00,000 Less: Cost of acquisition: Rs 5,00,000 Long-term capital gain: Rs 45,00,000

No indexation is available (shares sold after 23 July 2024 under the Finance (No. 2) Act 2024 rules).

Step 3: Tax on the gain

Base LTCG tax at 12.5% on Rs 45,00,000 = Rs 5,62,500

Surcharge: Rs 45,00,000 gain does not itself push your total income above Rs 50 lakh unless you have other Indian income. Assume your total Indian income including this gain is Rs 55,00,000 (gain of Rs 45 lakh plus other NRO interest of Rs 10 lakh). Surcharge at 10% on tax = Rs 56,250.

Health and education cess at 4% on (tax + surcharge) = Rs 5,62,500 + Rs 56,250 = Rs 6,18,750. Cess: Rs 24,750.

Total tax: Rs 6,43,500 (approximately).

Step 4: TDS the buyer must deduct

The buyer must deduct TDS on the LTCG at 12.5% plus applicable surcharge and cess. If the buyer does not know your exact surcharge status, they typically deduct at 12.5% base rate plus cess as a starting point, or obtain a CA's advice.

Minimum TDS at 12.5% on Rs 45,00,000 = Rs 5,62,500.

The buyer pays you: Rs 50,00,000 minus Rs 5,62,500 = Rs 44,37,500.

The buyer deposits Rs 5,62,500 as TDS. You receive a Form 16A certificate.

Step 5: Filing your return

You file ITR-2 for AY 2027-28 (for financial year 2026-27). Report the capital gain under "Capital Gains" schedule. Claim TDS credit for Rs 5,62,500 shown in Form 16A. If your actual tax is Rs 6,43,500, you pay the balance of approximately Rs 81,000 as self-assessment tax (or advance tax during the year). If TDS exceeded actual tax, you claim a refund.

Step 6: Advance tax check

If TDS is expected to be lower than actual tax liability, pay advance tax by the due dates. The 15 March instalment is most important. See advance tax for NRIs.

Step 7: Repatriation

Your buyer (or their bank) prepares Form 15CA (Part C) and you arrange Form 15CB from a CA. These are filed before the bank remits Rs 44,37,500 to your overseas account.

FMV check: The startup's latest audited balance sheet shows NAV of Rs 48 per share. The transaction is at Rs 50 per share, which is above NAV. Section 50CA does not apply. Section 56(2)(x) does not apply (the buyer is not paying below FMV). No FMV issue here.

Total cash received abroad (gross of any overseas tax): Rs 44,37,500 (approximately Rs 5.3 lakh USD at current rates), with tax credit of Rs 5,62,500 sitting with the government.

DTAA implications for US-based NRIs

India's DTAA with the United States covers capital gains. Under Article 13 of the India-US DTAA, gains from alienation of shares of an Indian company may be taxed in India if the company is principally a real estate holding company, or under the domestic law savings clause that the India-US treaty preserves. In most cases, India retains the right to tax gains from Indian shares under its domestic law.

However, the US also taxes its residents (including NRIs with US green cards or citizenship) on worldwide income. The Rs 6,43,500 in Indian tax paid can be claimed as a Foreign Tax Credit (FTC) on your US federal return (Form 1116). This prevents double taxation. See the guide on foreign tax credit Form 67 for the Indian side of the FTC process (you also need to file Form 67 in India if you are claiming foreign tax credits there, though for an NRI selling Indian shares, the credit is typically claimed in the country of residence, not India).

For residents of UAE, Singapore, or other zero-tax jurisdictions, there is no foreign tax credit issue since the residential country imposes no tax. The Indian tax is your final tax cost. See DTAA relief for NRIs for treaty-country-specific nuances.

Planning points before you sell

1. Get valuation documentation first. Before agreeing on a price, have the company's CA compute the Rule 11UA NAV. Set your transaction price at or above that figure to avoid Section 50CA and 56(2)(x) exposure.

2. Apply for Section 197 certificate early. If you have losses to offset or exemptions to claim, file the lower TDS application at least six weeks before you expect the transaction to close.

3. Clarify TDS responsibility with the buyer. Put the TDS obligation, the TAN details, the deadline for deduction and deposit, and the Form 27Q filing commitment in the share purchase agreement.

4. Co-ordinate Form 15CB timing. Engage a CA for Form 15CB at the same time as you negotiate the transaction. The CA needs time to review documents. Do not leave this until after the deal is signed.

5. Check your advance tax dates. If TDS will not cover your full liability, pay the balance by 15 March of the financial year in which you sell. Advance tax for NRIs has the instalments.

6. Consider Section 54F. If you reinvest the net sale consideration into a residential property in India within two years of the sale (or construct within three years), you may claim exemption under Section 54F on a proportionate basis. See capital gains exemptions under 54, 54EC and 54F for conditions and limits.

The closing read

Selling unlisted Indian shares as an NRI is a multi-party compliance event, not just a tax computation. The buyer must deduct TDS. The buyer must file Form 27Q. You must arrange Form 15CB before your money moves abroad. If the price is below FMV, both parties have additional tax exposure under Sections 50CA and 56(2)(x).

The 12.5% LTCG rate introduced from July 2024 is lower than the old 20% rate, but the loss of indexation means the comparison depends heavily on how long you held the shares and how much costs have risen. For shares held four-plus years with a 10x gain, the new rate is still favorable. For shares held just over 24 months with modest gains in an inflationary period, the math may be closer.

Get the paperwork right and in the correct sequence: valuation, Section 197 certificate if needed, share purchase agreement with TDS clauses, TDS deduction and deposit, Form 27Q, Form 15CA/15CB, then remittance. Skipping or reordering steps creates problems that are expensive to fix after the fact.

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Related guides

• Capital gains tax for NRIs on shares and mutual funds
• Capital gains exemptions under Sections 54, 54EC and 54F
• Lower TDS certificate: Section 197 and Form 13
• TDS for NRIs and how to claim refunds
• DTAA relief for NRIs: overview
• DTAA mechanics: TRC and Form 10F
• Foreign tax credit: Form 67 for NRIs
• Advance tax for NRIs: when and how to pay
• ITR filing for NRIs: AY 2026-27
• NRI tax calendar 2026: key dates
• NRE, NRO and FCNR accounts explained
• Reducing NRO TDS using DTAA
• RSU and ESOP taxation for NRIs
• NRI and Indian startup ESOP tax
• Responding to NRI tax notices

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Tax disclaimer

This guide is for general informational purposes only. It reflects the law as understood at the date of publication (May 2026) and is based on the Income Tax Act 1961, the Finance Acts, and CBDT circulars and notifications available at that time. Tax laws change frequently.

This guide does not constitute professional tax advice. The capital gains rates, TDS obligations, FMV rules, and DTAA positions described here may not apply to your specific facts. Individual circumstances (residency status, cost basis, holding period, country of residence, treaty position, and other income) significantly affect tax outcomes.

Consult a qualified chartered accountant or tax advisor before entering into any transaction involving unlisted shares. The authors and publishers of this guide accept no liability for any loss arising from reliance on information contained herein.

For DTAA positions, always obtain a Tax Residency Certificate from your country of residence and file Form 10F in India before claiming treaty benefits.