06 July 2024
In the scenario described regarding IL&FS redeemable preference shares, here are the answers to your questions:
1. **Claiming Long Term Capital Loss:** - Yes, your client can claim a long-term capital loss in the absence of receiving the redemption amount. Since IL&FS has defaulted on its commitment to redeem the preference shares, this would typically qualify as a capital loss. - For tax purposes, the loss would be considered at the time of the redemption date (2021 and 2022 for the respective lots).
2. **Year for Claiming Loss:** - For the preference shares with redemption due in 2021 (already past due date), the loss can be claimed in the financial year 2020-21 (assuming it was not claimed earlier). - For the preference shares with redemption due in 2022, the loss can be claimed in the financial year 2021-22.
3. **Indexation Benefit:** - Indexation benefit is typically available for computing the cost of acquisition and calculating the capital gains or losses on long-term assets. However, in the case of redemption of preference shares where the amount is not received, indexation might not be applicable as there is no sale consideration to adjust for inflation.
4. **Proof of Default:** - In the absence of communication from IL&FS regarding the default, your client should maintain all relevant documentation: - Copy of the original allotment letter or agreement for the preference shares. - Copies of correspondence, if any, with IL&FS regarding the default. - Any legal notices or correspondence indicating the default from IL&FS. - These documents would serve as proof of the default and support the claim of capital loss.
5. **ITR Schedule CG:** - In the Income Tax Return (ITR), the capital loss from the redemption of preference shares would typically be shown in Schedule CG (Capital Gains). - Ensure that the details of the shares, including the date of acquisition, date of redemption, face value, premium, and the amount of loss, are accurately filled in Schedule CG.
Given the complexity and specific legal implications involved in such cases, it is advisable to consult a tax advisor or chartered accountant who can provide personalized guidance based on the latest tax laws and regulations applicable to your client's situation. They can also assist in correctly reporting the capital loss in the Income Tax Return to ensure compliance with tax laws and maximize the benefit of the loss for your client.
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