27 August 2020
I am holder of equity shares of Atlas Copco India Limited.
The shares of the company are delisted few years back. Recently company has redeemed the shares. The sale proceeds received by me has been treated by the company as deemed dividend in terms of Section 2(22) (d) of the income tax Act.
I will have to show this deemed div.as income from other sources.
What about the cost of share purchased by me. can I claim it as deduction from the other income in my income tax return ?
14 July 2024
In your situation, where you have received sale proceeds from redeemed shares of Atlas Copco India Limited, treated as deemed dividend under Section 2(22)(d) of the Income Tax Act, here’s how you should approach it:
### 1. Treatment of Deemed Dividend:
- **Nature of Income**: The sale proceeds received from the redeemed shares are considered as deemed dividend. As per Section 2(22)(d), any payment by a company, not being a payment in the ordinary course of business, to a shareholder is deemed to be dividend if it exceeds the accumulated profits of the company.
- **Taxation**: This deemed dividend is taxable under the head "Income from Other Sources" in your income tax return. You will need to include the amount received as deemed dividend in your total income for the relevant assessment year.
### 2. Cost of Shares Purchased:
- **Claiming Deduction**: Unfortunately, the cost of acquisition of the shares cannot be claimed as a deduction against the deemed dividend income under Section 2(22)(d). The Income Tax Act does not provide for any deduction of the cost of acquisition in such cases.
- **Impact of Cost Basis**: While you cannot deduct the cost of acquisition directly against the deemed dividend income, the cost basis of the shares will still be relevant for the purpose of calculating any capital gains or losses in the event of future sale or redemption of other shares.
### 3. Reporting in Income Tax Return:
- **Form ITR**: Report the deemed dividend income under the appropriate schedule for "Income from Other Sources" in your Income Tax Return (ITR). Ensure to accurately disclose the amount received and follow the guidelines provided in the ITR form.
- **Tax Calculation**: The deemed dividend income will be taxed at your applicable income tax slab rate. Ensure to calculate and pay any applicable taxes on this income.
### Conclusion:
While the deemed dividend income received from the redemption of shares is taxable, you cannot claim the cost of acquisition of the shares as a deduction against this income. It's essential to accurately report the income in your income tax return and comply with the provisions of the Income Tax Act.
If you have any specific questions or need further clarification on the tax treatment, it’s advisable to consult with a tax advisor or chartered accountant who can provide personalized guidance based on your individual circumstances and the specifics of the deemed dividend received.
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