Amount forfeited against sale of unlisted share

I received advance against sale of shares of my Private Limited company. Since deal could not be materialised the amount was forfeited.

Now whether this amount would be deducted from the cost of such shares, if yes from which year for the capital gain purpose, if sold afterwords.

If no, then how it would be treated ? If it is treated as straight profit then can it be set off against Long term/ short term capital gain, other income, salary or rental income etc..
Replies (5)
Quick Summary
This discussion explores the tax treatment of an advance received for the sale of unlisted private company shares that was subsequently forfeited. The core question is whether this forfeited amount should be deducted from the share's cost basis for capital gains tax purposes or treated as immediate profit. The conversation touches upon how such profit, if applicable, could be offset against various income types.

Forfeited amount is the value of shares forfeited. These transactions are equity instruments and capital gains arise n trading instruments, 

 

This resource will help you to understand forfeiting shares and reissuing shares with a profit or loss. Where to recognise profit or loss as well from reissue. Capital gains is not a tax rule here and one can ignore that philosophy.

https://www.toppr.com/guides/principles-and-practices-of-accounting/issue-forfeiture-reissue-of-shares/reissue-of-forfeited-shares/

 

@ Yasaswi Ji I think some misunderstanding is there in understanding the case. Company is no where in picture. I am holding the shares of a Pvt. Ltd. Company and I personally received advance for sale of those shares. Company has not received anything.

Sir, You must be an underwriter or a broker in this case. Your are liable for any losses if there is no payment transferred to the principal. These are sebi rules for listed brokers. I’m sure, you will not be held responsible for forfeiture, but you need to transfer that money to the company and they will record forfeiture. You will also record forfeiture for the advance received. Usually brokers are indemnified but your case, I can’t find regulations for equity brokers online. If you were granted a commission on your sale, you can keep it or the company might not give it. Because an underwriter or a broker is a well established individual in the market who usually makes a sale. 

https://www.sebi.gov.in/sebi_data/commondocs/ch8_p.pdf

If your one of the 200 shareholders for a put company, if the shares are still on your name, then record a gain as forfeiture in your income. That’s tax and I will try and find a solution.

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