Claiming a capital loss on delisted shares for your ITR filing can be a bit tricky, but it’s possible under the Income-tax Act, 1961. The key is to understand that a loss can only be claimed when a “transfer” of the shares occurs, not just when they are delisted. Delisting means the shares are no longer traded on the stock exchange, but they still exist in your demat account.
Here’s a breakdown of the rules and how to handle it:
The “Transfer” Rule
A capital loss can only be “realized” when the shares are either sold or their rights are extinguished.
- Selling off-market: If your delisted shares are still in your demat account, you can sell them in an off-market transaction at a nominal value. This “sale” constitutes a transfer, allowing you to claim the loss.
- Extinguishment of rights: If the company has been liquidated, bankrupted, or struck off the Register of Companies (ROC), the shares are considered to have zero value, and your rights as a shareholder are extinguished. In this case, you can claim the loss without a sale.
How to Report the Loss in Your ITR
You must report the loss in Schedule CG (Capital Gains) of your ITR. The tax treatment depends on how long you held the shares:
- Short-Term Capital Loss (STCL): If you held the shares for 24 months or less, the loss is short-term. You can use it to offset both short-term and long-term capital gains in the same year. If there’s a remaining loss, you can carry it forward for up to eight years.
- Long-Term Capital Loss (LTCL): If you held the shares for more than 24 months, the loss is long-term. You can only use it to offset long-term capital gains. Similar to STCL, any unadjusted loss can be carried forward for eight years.
Required Documents
To substantiate your claim and for potential verification by the Income Tax Department, it’s crucial to have the right documents:
- For Off-Market Sale: Keep the off-market transfer deed, a copy of the contract note, a bank statement showing the nominal proceeds, and your demat statement.
- For Extinguishment of Rights: You’ll need the ROC strike-off notice, public liquidation notice, or a certificate from an auditor/CA confirming the extinguishment of rights.
Important Reminders for ITR Filing 2025
- Report the Loss: Ensure the loss is accurately reported in Schedule CG.
- Realize the Loss: Simply having delisted shares is not enough; the loss must be realized through a sale or extinguishment.
- File on Time: To be eligible to carry forward the loss, you must file your ITR by the deadline. For the financial year 2024-25, the extended ITR filing deadline is September 15, 2025.
By keeping meticulous records and following these guidelines, you can effectively use the capital loss from delisted shares to reduce your tax liability.