Deemed Dividend on capital reduction of minority shareholder

Income Tax
1

Hello, I was holding shares of unlisted company. The company extinguished the shares of all minority shareholders by capital reduction and the amount received by me is shown as deemed dividend. The deemed dividend is added to my total income and getting taxed as per my slab, but my question is what about my shares, which were capital asset and got extinguished. Should their indexed acquisition cost be deducted from deemed dividend or shown separately as capital loss considering sales value as zero or any other way?

2

Hi @deepakm007

With regard to those shares which are extinguished, they will be considered as your LTCL and hence you cannot deduct any indexed acquisition cost from the deemed dividend.

3

Is it Reliance Retail?

4

Thanks for response. This is strange provision, minority shareholder is already being given a short hand and then instead of capital gain, need to pay higher tax on deemed divided and book capital loss. @tarun, No, its not Reliance Retail, thats different case and the company has paid more amount than from accumulated profits, so would be treated differently, I believe.