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Investors often find themselves in a dilemma when the shares they hold get delisted from the stock exchange. While delisting is not uncommon, it creates confusion about whether capital loss on such shares can be claimed in Income Tax Returns (ITR). According to tax experts, the rules around this are quite specific, and understanding them is crucial before filing your returns.

What Income Tax Law Says About Capital Gains and Losses

As per the Income Tax Act, capital gains or capital losses arise only when there is a transfer of an asset. In tax terms, “transfer” refers to either the sale of the asset, the extinguishment of ownership rights, or any transaction where the asset changes hands.

If an investor continues to hold shares—even if they are delisted—those shares are still considered to exist in their demat account. In such cases, since there is no transfer, no capital loss can be claimed.

Why Delisting Creates a Problem for Investors

When a company opts for voluntary delisting or is forced into delisting due to regulatory reasons, investors generally get an opportunity to sell their shares before the process is completed. However, many investors miss this exit window.

Once the shares are delisted, they cannot be sold in the open market. The only possibility of selling them arises if the company provides a structured exit route. If no such provision is offered, investors end up with unsellable shares stuck in their demat accounts.

Can Capital Loss Be Claimed on Delisted Shares?

Tax expert Balwant Jain explains that loss cannot be claimed simply because shares are delisted, as long as they continue to exist in the demat account. For tax purposes, the asset is still considered in the investor’s possession.

However, there are certain exceptions:

1. If the company goes into liquidation or insolvency under the National Company Law Tribunal (NCLT) process, and the tribunal orders the extinguishment of shares, then those shares are treated as non-existent. In such cases, the capital loss can be claimed in the year the extinguishment is recognized.

2. Off-market transfers are another way to realize capital loss. Investors can transfer delisted shares to a family member or any other person at a nominal value, such as ₹0.01 per share. This transaction counts as a transfer under tax rules, enabling the investor to book a loss in that financial year.

How to Report in ITR

Since ITR forms do not have a separate field for reporting extinguished or delisted shares, investors can mention them with a nominal transaction value. The loss should be claimed in the financial year in which the shares were either extinguished (in case of liquidation) or transferred off-market.

Short-Term vs. Long-Term Capital Loss

• If shares were held for more than 24 months, the resulting loss is classified as long-term capital loss (LTCL).

• If held for less than 24 months, it is treated as short-term capital loss (STCL).

The set-off rules are:

• LTCL can only be adjusted against long-term capital gains.

• STCL can be adjusted against both short-term and long-term capital gains.

If the loss cannot be fully set off in the same year, it can be carried forward for up to 8 years for adjustment against future capital gains.

Key Takeaways for Investors

• Simply holding delisted shares in a demat account does not qualify for capital loss claims.

• Loss can be claimed only if the shares are extinguished through liquidation/insolvency or transferred off-market.

• Investors should carefully document the year of extinguishment or transfer to ensure accurate reporting in their ITR.

• Proper classification into short-term or long-term categories is essential for set-off and carry-forward purposes.

Final Word

For investors like Mahesh Goyal, who are stuck with delisted shares, the tax law provides limited options. Without an actual transfer or extinguishment, no capital loss can be claimed. However, by using the provisions of off-market transfers or recognizing losses during liquidation, investors can still bring some tax relief out of a seemingly dead investment.