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Your Queries – Income Tax: No capital loss on shares delisted but not extinguished

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By Chirag Nangia

I bought 1500 shares of DHFL during 2015-2016. Post the resolution, DHFL shares are not listed now, and my investment value is zero. Can I claim a long term capital loss?
—P V Krishna

Capital loss or gain can be booked only when any ‘transfer’ of a capital asset takes place. Pertinently, transfer also includes extinguishment of the rights in the asset. 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 in the shares 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. Pertinently, 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.

I have been holding certain shares and mutual fund units. Do I have to pay any tax now?
—Ganesh

For taxation purposes, capital gain or loss arises when there is a ‘transfer’ of capital asset. ‘Transfer’ includes sale/ exchange/ relinquishment of assets or extinguishment of rights for a consideration. Profit or gains arising from transfer of an immovable property held as a capital asset, are taxed under the head “Capital Gains” and incidence of tax depends on the period of holding. Capital gain derived from sale of listed equity shares, units of equity-oriented mutual fund held for a period more than 12 months results in long term capital gain (LTCG) which are taxable at the rate of 10% + cess + surcharge (if applicable), in excess of INR 1 lakh, with no indexation benefit. However, if held for 12 months or less, would result in short term capital gain (STCG) which is taxable at a rate of 15%.

Capital gain derived from debt oriented mutual fund (DOMF) held for more than 36 months would result in LTCG which are taxable at rate of 20% and you shall be permitted to avail the benefit of indexation. However, if held for 36 months or less, would result in STCG which is taxable at slab rate.

(The writer is director, Nangia Andersen India. Send your queries to [email protected])

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