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How to claim capital loss on shares of delisted companies

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Once the shares get delisted, it becomes almost impossible to sell them unless the company offers any exit route so effectively the investment becomes irrecoverable and is actual loss for the taxpayer but we cannot claim that loss as the shares have neither been extinguished nor transferred by you

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Please clarify how to claim capital loss on shares of delisted companies. Please let me know the procedures, and for how many years that can be carried forward as per income tax rule. Hope you will be in a position to clear my doubt and enable me to recover my losses as per income tax rule against future capital gains.

As per the income tax laws one earns capital gains or incurs capital loss only when the capital asset is transferred. The income tax act defines the term “transfer" to include extinguishment of the rights in the asset in addition to actual transfer of the asset. I presume that the shares you are talking about have only been delisted and are still in existence. 

Once the shares get delisted, it becomes almost impossible to sell them unless the Company offers any exit route so effectively the investment becomes irrecoverable and is actual loss for the taxpayer but we cannot claim that loss 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 NCLT under IBC and the NCLT has authorised the company to extinguish the shares, you can claim the loss. Whether the shares have been extinguished or not you can verify it from your demat statement. 

If the same have been extinguished as well, you can apply the indexation on your original cost and claim the whole indexed cost as short term or long term depending on the holding period. Such loss can be carried forward for eight years if the same cannot be adjusted during the current year.

Balwant Jain is a tax and investment expert and can be reached at jainbalwant@gmail.com and @jainbalwant on Twitter

 

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