You sold unlisted shares for a gain of ten. The buyer withheld tax as if you made a hundred. Here is the fix.

Start with what you actually owe, because it drives everything else. Unlisted shares, your exercised ESOP, founder shares, shares in a private company, are not the same as listed shares for tax. The holding period to count as long-term is 24 months, not 12. Sell after holding more than 24 months and the gain is long-term, taxed at 12.5 percent, with no indexation to lift your cost. Sell within 24 months and it is short-term, taxed at your slab rate.

Since the 2024 Budget, that 12.5 percent long-term rate is the same for residents and non-residents on unlisted shares. The old lower non-resident rate is gone, replaced by a flat 12.5 percent that now matches what residents pay. So your real tax is straightforward to compute: sale price, minus your cost, taxed at 12.5 percent if long-term.

If these are ESOP shares, remember your cost is not what you paid at exercise. When you exercised, the difference between the market value then and your exercise price was already taxed as a salary perquisite. Your cost for the capital gain is that market value at exercise, not the exercise price, so you are not taxed twice on the same rise.

Here is the part that catches people. When you sell to an Indian buyer, the law makes the buyer responsible for deducting your tax at source under Section 195, and paying it to the government before the money reaches you. In theory the buyer should deduct only on the taxable part, your gain. In practice they cannot, and they will not risk it.

The buyer has no way to know your cost, your holding period or your gain, and if they under-deduct, the tax department can come after them for the shortfall plus interest. So to be safe, the buyer deducts on the entire sale consideration, the whole price, as if it were all taxable. On a sale of one crore where your actual gain is twenty lakh, that can mean tax withheld on the full crore rather than on the twenty lakh, and a large part of your proceeds is locked up with the government until you claim it back in your return, months later.

That is not a mistake by the buyer. It is the safe default the rules push them to. The way to stop it is to take the computation out of the buyer's hands.

The tool that fixes the over-withholding is a lower or nil deduction certificate under Section 197, now renumbered Section 395. You apply to the assessing officer, on Form 13, now Form 128, before the sale, setting out your cost, your holding period and your actual expected gain. The officer computes the real tax and issues a certificate telling the buyer exactly how much to deduct, on the gain, not the gross.

With that certificate in the buyer's hands, they deduct the right amount, and your proceeds arrive largely intact rather than with a third or more parked at the tax department. It is the same mechanism NRIs use for property sales, applied to shares.

The catch is timing. The certificate takes weeks to obtain, so it has to be started well before the sale closes, not after. If the deal is moving fast, this is the first thing to set in motion, because once the buyer has paid with tax deducted on the gross, your only route is to claim the excess back through your return.

There is a second rule that surprises founders and employees: you cannot simply agree any price with the buyer. Because this is a transfer of shares between a non-resident and a resident, it falls under India's foreign-investment pricing rules, part of the FEMA framework.

The principle is about protecting the flow of capital. When a non-resident sells shares in an unlisted Indian company to a resident, the price must not be more than the fair value of the shares. You can sell for less, but not for more than fair value, which stops money being moved out of India through an inflated price. Fair value here is not a number you pick. It has to be worked out by a chartered accountant or a SEBI-registered merchant banker, using an internationally accepted valuation method, discounted cash flow is the usual one, on an arm's-length basis.

So before the sale, you need that valuation in hand, and the agreed price has to sit within it. The transfer also has to be reported to the Reserve Bank, through a filing the resident buyer makes, so both sides have a compliance step, not just you.

The last question is whether you can take the proceeds abroad. That turns on how you held the shares.

If you acquired the shares on a repatriable basis, funded from your NRE account or a foreign remittance and reported as such, the sale proceeds, after tax, can be credited to your NRE account and taken abroad freely. If you held them on a non-repatriable basis, or the shares came to you while you were resident and you later became an NRI, the proceeds go into your NRO account, from which you can repatriate up to a million US dollars a financial year, with the usual chartered-accountant certificates.

For most ESOP holders who earned and exercised while working in India and then moved abroad, the second route is the common one: the money sits in NRO and comes out under the annual limit. It is worth mapping this before the sale, because it decides which account the buyer should pay into and how quickly you can actually use the money.