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I had invested an amount of ₹17 lakh in an unlisted company as a private equity investment in March 2015.
On account of losses in the invested entity business, I sold off the investment for ₹11.3 lakh in August 2018, after a period of three years and five months, resulting in a loss of ₹5.7 lakh. All of the buy and sell transactions were off-market.
1) Are these transactions long-term capital loss?
2) Can I offset the loss of ₹5.7 lakh against: a) Any potential long-term capital gains from equity, or b) Any potential long-term capital gains from sale of property?
3) Besides claiming capital loss, can I also apply indexation?
PS Krishnan
As per the provisions of Section 2(42A) of the Income Tax Act, any sale of share of an unlisted company is considered a sale of a long-term capital asset if the share is held for more than 24 months (36 months till AY 2015-16).
As you sold the shares of the unlisted company in August 2018 after holding them for a period of 41 months and incurred a loss, such loss shall be considered a long-term capital loss (LTCL). While calculating such loss, the benefit of cost inflation index shall be available as per the provisions of Section 48 of the I-T Act.
Further, as per the provisions of Section 70 of the I-T Act, LTCL can be set off against gains from sale of any long-term capital asset.
Accordingly, you can set off the LTCL from the sale of the unlisted equity share against potential long-term capital gains (LTCG) from equity and sale of property (being a long-term capital asset). Such loss is not allowed to be set off against any income other than that from LTCG.
If LTCL cannot be adjusted in the same year, the unadjusted loss can be carried forward to the next year to be set off against LTCG.
Such loss can be carried forward for eight years immediately succeeding the year in which the loss is first incurred.
To claim such carry-forward of loss, the return of income/loss of the year in which the loss is incurred (AY2019-20 in your case) is required to be furnished on or before the statutory due date of filing of return, as prescribed under Section 139(1) of the I-T Act. Thus, your understanding mentioned in the query is correct.
The writer is a practising chartered accountant. Send your queries to taxtalk@thehindu.co.in
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