Your questions – Income tax: No capital loss on delisted but not extinguished shares

By Chirag Nangia

I bought 1500 shares of DHLL in 2015-2016. After the resolution, the shares of DHFL are no longer listed and the value of my investment is zero. Can I claim a long-term capital loss?
—PV Krishna

The capital gain or loss can only be recognized when a capital asset “transfer” occurs. Relevantly, the transfer also includes the extinguishment of rights in the asset. In addition to the actual transfer (sale) of an asset, the term “transfer” includes the extinction of rights in the asset. Since the shares were only written off and still exist, it cannot be said that they were extinguished or transferred and therefore there can be no capital gain or loss. Although the investment in the shares appears to be completely sunk and constitutes an actual loss, you cannot claim this loss as the shares were neither extinguished nor transferred by you. Relevantly, the loss can only be claimed when the company goes into liquidation or the shares are actually transferred by you to another person for less than the indexed cost of acquiring the shares.

I have owned certain stocks and mutual funds. Do I have to pay tax now?
—Ganesh

For tax purposes, a capital gain or loss arises when there is a “transfer” of capital property. “Transfer” includes selling/exchanging/giving up assets or extinguishing rights for consideration. Profits or gains from the transfer of real estate held as fixed assets are taxed under “Capital gains” and the incidence of tax depends on the period of holding. The capital gain resulting from the sale of listed shares, units of FCP shares held for a period of more than 12 months gives rise to a long-term capital gain (LTCG) taxable at the rate of 10% + cess + surcharge (the if any), beyond INR 1 lakh, with no indexation benefit. However, if held for 12 months or less, it would result in a Short Term Capital Gain (STCG) which is taxable at a rate of 15%.

Capital gain from a Debt Focused Mutual Fund (DOMF) held for more than 36 months would incur LTCG which is taxable at the rate of 20% and you will be allowed to take advantage of indexing. However, if held for 36 months or less, this would result in STCG which is taxable at the slab rate.

(The author is the director, Nangia Andersen India. Send your questions to [email protected])

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