If your shares have been delisted and are lying idle in your demat account, can you book a capital loss on them? The answer depends on whether the shares are considered “transferred” under tax laws.
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I had invested in the shares of an infrastructure company long back. Of late, the same is not traded on the stock exchange. It seems the same have been delisted. Please clarify how to claim capital loss on shares of delisted companies. Please let me know the procedures for the same. For how many years can the loss be carried forward as per the income tax laws?
Expert Advice: As per the income tax laws, one earns capital gains or incurs capital losses only when the capital asset is transferred. The income tax act defines the term “transfer" to include the extinguishment of the rights in the asset in addition to the actual transfer of the asset. It seems that the shares of the infrastructure company have been delisted only but are reflecting in your demat account.
Once the shares get delisted, it becomes almost impossible to sell them unless the Company offers any exit route to the shareholders, so effectively your investment has become irrecoverable and is your actual loss, but you cannot claim this loss in your Income Tax Return as the shares have neither been extinguished nor transferred by you.
In case the company has gone into liquidation or the company has been referred to the National Company Law Tribunal (NCLT) under the Insolvency and Bankruptcy Code, and the NCLT has authorised the company to extinguish the shares, you can claim the loss.
Whether the shares have been extinguished or not can be verified from your demat account. If the same have been extinguished, the same would not reflect in your demat account. Since the ITR form is not properly configured to accept the transactions of extinguishment of shares, you can put a value of nominal amount like 0.01 rupee as consideration to be able to enter the details of extinguishment in the ITR. In case the same shares are not reflected in your demat account, you can claim the loss in the year in which the shares are extinguished.
If the same are still showing in your demat account, though the same have been delisted as the same shares very much exist, and you cannot claim any loss in respect of shares of such delisted companies unless and until you actually transfer these shares. In order to claim the loss, you can transfer these shares through an off-market deal to your family members at a nominal price and book the loss.
The loss is treated as long-term capital loss or short-term capital loss, depending on whether you held the shares for more than 24 months, as the shares are no longer listed. If held for more than 24 months, the loss will be long-term capital loss; else, the loss shall be treated as short-term capital loss. The long-term capital loss can be set off against long-term capital gains only, and losses not so set off are allowed to be carried forward for eight subsequent years. The short-term loss has to be adjusted against short-term capital gains first if available, and then against long-term capital gains in the same year, and can be carried forward for eight years if not fully adjusted during the same year.
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