Tax Column - Jayesh Dadia Chartered Accountant

Tax Column - Jayesh Dadia Chartered Accountant

I had, as an individual, invested ₹ 1 crore as share capital in ABC (P) Ltd. in 2001. Three years ago, ABC went into liquidation and in the current financial year the company has been wound up by an order of NCLT. On winding up, I received ₹1.5 crore, being the surplus left after payment of all the liabilities. What I want to know is whether the amount received is now taxable and if yes, under which head should it be calculated and how?

It is clearly mentioned under Section 46(2) of the Income Tax Act that if a shareholder receives money on the liquidation of a company, it shall be liable for Income Tax under the head of capital gain. Thus, the amount of ₹1.5 crore is subject to Capital Gain Tax in the current financial year i.e. 2020-21, relevant to assessment year 2021-11. Since you were holding the shares for more than two years, the capital gain would be considered long-term capital gain. Further, while calculating the capital gain, you will also be entitled to deduction of cost with indexation. If your indexed cost is more than ₹1.5 crore, there will be capital loss in your hand which could be available for set-off against any other capital gain you may have made in the current financial year. The unabsorbed long-term capital gain can be carried forward for subsequent eight years.