What is the tax rate on a secondary sale of unlisted startup shares?

12.5% LTCG under Section 112 (no indexation) if you have held the shares over 24 months, effective for transfers on or after 23 July 2024. Shares held under 24 months are taxed at slab rates (up to 30%).

What documents are needed for a secondary sale?

Share purchase agreement, board resolution, ROFR waiver or investor consent letters, valuation certificate from a chartered accountant, share transfer form (SH-4), stamp duty payment, and Form FC-TRS if the buyer is foreign.

My buyer is based in Singapore. What FEMA compliance is required?

The sale must be at or above the fair market value determined by a CA using DCF or net asset value method. A Form FC-TRS must be filed with the AD bank within 60 days of receipt of funds. The buyer must be from a FEMA-permissible country (Singapore qualifies under the automatic route for most sectors). Sector-specific caps must also be verified.

I have signed an SPA and the buyer backed out. What happens to the advance?

This depends on the terms of your SPA. Most well-drafted SPAs include a break fee or earnest money provision. Any advance received and retained is taxable as income in the year received. If it is subsequently refunded, you can claim a deduction in that year.

Can a VC fund buy secondary shares from a founder directly?

Yes. Many Series A and B rounds include a secondary component where the incoming VC buys a portion of founder shares alongside the primary subscription. This is increasingly common and investors often prefer it as it aligns incentives. The same FEMA and IT Act compliance applies based on the fund's jurisdiction and structure.

I have unvested ESOPs that are in-the-money. Can I include them in a secondary?

No. You can only sell shares you own. Unvested ESOPs are not exercised and therefore not shares. Once vested, you can exercise at the exercise price (taxed as perquisite at FMV minus exercise price at the time of exercise under Section 17(2)), and then sell the resulting shares as a secondary. The two events carry different tax treatments and must be planned separately.

What if the company has multiple classes of shares and I hold preference shares?

Secondary sale rules apply equally to preference shares. However, FMV computation becomes more complex when preference shares carry liquidation preferences.

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Home > Legal > Founder liquidity in India: Routes, Tax rates, and What to do before you sell

Founder liquidity in India: Routes, Tax rates, and What to do before you sell

Written By

Priya Kapasi Shah

Published on

April 26,
2026

Last updated on

April 27, 2026
10:44

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https://dev.treelife.in/legal/founder-liquidity-in-india/

Startup

Investor

Going Global

Startup

Investor

Going Global

Founder liquidity in India: Routes, Tax rates, and What to do before you sell

Written By

Published on

April 26,
2026

Last updated on

April 27, 2026
10:44

Share

Taking cash out and not sure which route fits your cap table?

Let's Talk

Startup

Investor

Going Global

Startup

Investor

Going Global

Founder liquidity in India: Routes, Tax rates, and What to do before you sell

Written By

Published on

April 26,2026

Last updated on

April 27, 202610:44

Share

Taking cash out and not sure which route fits your cap table?

Let's Talk

April 26,
2026

April 27, 2026
10:44