There are many investors who are staring at huge losses on account of shares in which they had invested getting delisted. May investors are not sure whether they can claim the loss on account of their shares getting delisted.
When can you claim the losses in respect of delisted shares?
Income under the head ‘Capital Gains’ generally becomes taxable only when there is transfer of the capital asset held by you. A transfer may result into loss or gain. The gains are taxable and the losses incurred on transfer of capital assets can be set off against other gains as per the provisions of income tax laws. So, just because the shares are not traded on the stock exchanges and their value has become zero, does not mean that you can claim your losses in respect of such shares in your ITR. Transfer is very widely defined under the income tax laws.
The Income Tax Act defines transfer to include sale and exchange which is generally understood as transfer in common parlance. Moreover, the definition of transfer under the income tax laws also includes relinquishment of any right in the asset as well as extinguishment of the asset.
Even if the shares are delisted from the stock exchanges, the event of delisting does not come within the wider definition of transfer under the income tax laws. So though the shares are not traded on the stock exchanges after delisting, they are still there in your demat account. So, delisting cannot amount to extinguishment of the shares or your rights in the shares. The shares may be delisted for a variety of reasons and just the incident of delisting does not result in a loss as long as the shares are lying in your demat account. Amongst various reasons for delisting one of the reasons for delisting is as per resolution plan under Insolvency and Bankruptcy Code (IBC) approved by the National Company Law Tribunal (NCLT).
Under the resolution plan under IBC for a company, the first to suffer are the equity shareholder who generally do not get anything. Under the resolution plan NCLT generally orders extinguishment of the share capital of the company partly or fully. So, in case your shares are extinguished under the order of NCLT, you lose all your rights in such shares and such extinguishment amount to transfer under the Income Tax Act entitling you to claim such losses. You can also claim losses in your investment in case your investee company goes for voluntary liquidation and the shares are extinguished.
However, there is one way to claim the losses on shares which are delisted and still lying in your demat account. You can transfer these shares from your demat account through off market transaction for a very nominal price to any of your friends or relatives. Since these shares are no longer listed and the question of payment of STT on this transaction does not arise, the holding period requirement would be 24 months for qualifying as long term but you will be able to avail the benefit of indexation on the cost of such shares.
How to compute and claim such losses
You can adjust such loss against your gains under the head ‘Capital Gains’. Any loss incurred on extinguishment of share capital becomes long term if held for more than 24 months, else the loss is be treated as short term. In case such shares were treated as stock in trade, the loss of value of your investments can be debited in your profits and loss account.
Since the shares are unlisted, the question of payment of Security Transaction Tax does not arise and therefore you will be entitled to avail the benefit of indexation if the shares have been held by you for more than 24 months. In case your loss is short term, you can set off such losses against any capital gains whether short term or long term. In case the loss as computed is a long term loss, the same loss can be set off only against long term capital gains, including capital gains arising on sale/redemption of listed equity shares or units of equity-oriented scheme.
The losses which cannot be set off during the year against the eligible taxable capital gains, the unabsorbed losses can be carried forward for eight years for set off in future.
Practical difficulty in claiming such losses in your ITR
As explained above, technically and legally you can claim capital loss on delisted shares only on extinguishment of your rights in shares as extinguishment is treated as transfer but there are practical difficulties when your try to fill up your ITR form for claiming such losses. The exiting ITR forms do not have any modality to claim any loss on extinguishment of your right in a capital asset making it impossible for you to do so. The ITR forms only recognise sale and normal transfer transactions for the purpose of computing capital gains. As you are entitled to claim such loss and since the ITR forms do not have any modality to put zero as sale consideration, you can put very nominal figure like one paisa as value of the sale consideration as well as for fair market value of such shares in the ITR form for claiming such losses. This discussion will help many investors whose shares have been extinguished.
Quick Enquiry
FAQs
As explained above, technically and legally you can claim capital loss on delisted shares only on extinguishment of your rights in shares as extinguishment is treated as transfer but there are practical difficulties when your try to fill up your ITR form for claiming such losses.
Can I write off delisted stock? ›
Technically the IRS requires that a stock be totally worthless before you are entitled to a deduction. Some delisted stocks still trade in other markets which means they're not totally worthless as the iRs requires.
How do I get my money back from delisted shares? ›
The corporation must honour the delisting price. If the firm has been delisted for more than a year, the shareholder might approach the company and negotiate a private sale of the shares to the promoters. This will be an off-market transaction, with the price agreed upon by the seller and buyer.
Can I show share market loss in ITR? ›
These losses must be reported under the 'Profits and Gains of Business or Profession' section in the ITR form.
Can you claim a loss on shares in your tax return? ›
Capital losses
You can only claim a loss for shares or units you have disposed of. You can't claim a 'paper loss' on investments you continue to hold because they may have decreased in value.
How to claim loss on delisted shares? ›
The delisting of shares results in the impossible selling of shares until the company goes through the exit route. It is effectively irrecoverable and is a loss to the taxpayer. Once the company goes through liquidation or is referred to NCLT under IBC, NCLT declares the company to drop the shares and claim the loss.
Do you lose all your money if a stock gets delisted? ›
The Impact of Delisting on Investors
Once a stock is delisted, stockholders still own the stock. However, a delisted stock often experiences significant or total devaluation. Therefore, even though a stockholder may still technically own the stock, they will likely experience a significant reduction in ownership.
How do I get rid of delisted shares? ›
If a company is delisted, you are still a shareholder, to the extent of a number of shares held. And yet, you cannot sell those shares on any exchange. However, you can sell it on the over-the-counter market. This means you can look for a buyer outside the stock exchange.
What is the tax on delisted shares? ›
If the delisting happens a year after the security has been purchased, capital gains tax is not charged. However, if the delisting takes place within a year, whatever gain is made will be taxable, based on the tax slab of the individual.
How do I report a delisted stock? ›
Report your worthless securities transactions on Form 8949 with the correct box checked for these transactions. See Form 8949 and the Instructions for Form 8949.
If the shares that have become worthless are not in a company quoted on the stock exchange, but in a private company, for example, a family trading company, you may be able to set off your loss against income of the same tax year in which the loss is made or the previous one.
How much stock loss can you write off? ›
You can deduct stock losses from other reported taxable income up to the maximum amount allowed by the IRS—$3,000 a year—if you have no capital gains to offset your capital losses or if the total net figure between your short- and long-term capital gains and losses is a negative number, representing an overall capital ...
How do I report a stock loss on my tax return? ›
You can deduct your loss against capital gains. Any taxable capital gain – an investment gain – realized in that tax year can be offset with a capital loss from that year or one carried forward from a prior year. If your losses exceed your gains, you have a net loss. Your net losses offset ordinary income.
How long can you carry stock losses? ›
In general, you can carry capital losses forward indefinitely, either until you use them all up or until they run out. Carryovers of capital losses have no time limit, so you can use them to offset capital gains or as a deduction against ordinary income in subsequent tax years until they are exhausted.
How do I claim tax loss on worthless stock? ›
Here's what you need to do to report your loss: Report any worthless securities on Form 8949. You'll need to explain to the IRS that your loss totals differ from those presented by your broker on your Form 1099-B and why. You need to treat securities as if they were sold or exchanged on the last day of the tax year.
Should I sell my shares at a loss? ›
Selling a losing position helps preserve your fund and prevent further losses, especially in volatile or declining markets. Holding onto a losing position comes with an opportunity cost that ties up money that could be used for more profitable investments.
How do you get rid of a stock that no longer trades? ›
If the security cannot be sold in the market, it may be possible to dispose of the worthless security by gifting it to another person who can be related or unrelated to you. If you gift the worthless security to a family member, you will need to ensure that the person is not your spouse or minor child.
What can I do with a delisted stock? ›
If a company is delisted, you are still a shareholder, to the extent of a number of shares held. And yet, you cannot sell those shares on any exchange. However, you can sell it on the over-the-counter market. This means you can look for a buyer outside the stock exchange.
Can you write off 100% of stock losses? ›
You can deduct stock losses from other reported taxable income up to the maximum amount allowed by the IRS—$3,000 a year—if you have no capital gains to offset your capital losses or if the total net figure between your short- and long-term capital gains and losses is a negative number, representing an overall capital ...
What happens if you own puts on a stock that gets delisted? ›
What would happen if I bought a put option and the company got delisted before the expiration date? If the company is delisted, you can still exercise your PUT option (and you probably should). So if you own shares, you can still sell the shares at the strike price, even if they are no longer listed.
Santosh J Ahuja
