Your Queries – Income Tax: Delisted company’s shares cannot be cited as losses

Loss can be claimed only when the company goes into liquidation or the shares are actually transferred by you to another person for consideration less than the indexed cost of acquisition of shares.

Income Tax returns rising
As per the Income Tax Act, capital gain or loss arises when a capital asset is transferred.

By Chirag Nangia

I bought shares of a listed company shares in 2015, which was suspended from trading in 2017. In 2018, I sold another listed company’s shares at a long term capital gain. How do I adjust the gains with the losses. —M Amala

As per the Income Tax Act, capital gain or loss arises when a capital asset is transferred. Besides actual transfer (sale) of an asset, the term ‘transfer’ includes extinguishment of the rights in the asset. Since the shares have only been delisted and are still in existence, they cannot be said to have been extinguished or transferred and hence there can be no capital gain or loss. Although the investment seems to be completely irrecoverable and is actual loss, you cannot claim this loss as the shares have neither been extinguished nor transferred by you.

Loss can be claimed only when the company goes into liquidation or the shares are actually transferred by you to another person for consideration less than the indexed cost of acquisition of shares. This long term capital loss can also be set off against long term capital gains (LTCG), if any, for the year under consideration. The gain on transfer of listed shares pertaining to FY 2018-19 ought to have been declared in the return of income of AY 2019-20.

Companies like DHFL and Lakshmi Vilas Bank are not traded on stock exchanges now as they are under insolvency law. How to know which company has become defunct to claim short term losses? —Ritesh Goyal

Lakshmi Vilas Bank (LVB) has been amalgamated with DBS Bank India (DBIL). It has been established in various judicial precedents that shareholder’s rights to the shares of an amalgamating company are extinguished following the amalgamation. Consequent to the merger scheme, effective from Nov 27, 2020, an extinguishment has occurred in LVB’s shares. One can claim the loss for FY21 which can be carried forward if there are no matching capital gains to set off. As the shares were listed, these will be classified as long-term capital assets if they were held for more than 12 months. Long term capital loss can only be set-off against LTCG. However, short term capital losses can be set-off against both short/ long term capital gain. Based on your holding period, you may set-off losses.

(The writer is director, Nangia Andersen India. Send your queries to fepersonalfinance@expressindia.com)

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