The system of capital asset classification is slightly different in case of unlisted shares. Let us see the impact with the help of an illustration. Assume that Rahim Khan is a mid level executive in a software firm. In the month September, 2016 he purchased unlisted shares of Jargon Ltd. and sold the same in May 2018 through a private deal. How will this transaction be treated for capital gains purposes? Will it be a long term or short term capital asset?

In this case, shares are sold in assessment year 2019-20. As a result, period of holding for unlisted shares will be considered as 24 months instead of 36 months to cut-off for the purpose of long term capital gains as per the new rules applicable to the sale of unlisted shares as announced in the Union Budget 2018. However, since Rahim purchased shares in September 2016 and sold them May 2018, i.e. after holding them for a period of less than 24 months (he has only held the shares for a period of 20 months) these shares will be treated as Short Term Capital Assets and taxed accordingly.