Manager - Finance & Accounts
58634 Points
Joined June 2010
Hey! Sorry to hear about your NCD investment loss with SREI.
Here’s what you can do on tax front:
Treatment of loss on unsecured NCDs of bankrupt company:
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Capital Loss:
The loss on NCD (Non-Convertible Debenture) investment is treated as a capital loss since NCDs are capital assets.
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Type of Capital Loss:
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Since NCDs have a maturity date and are not traded frequently like shares, they are considered long-term capital assets if held for more than 36 months, else short-term.
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If held for more than 36 months, loss is a long-term capital loss (LTCL).
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Otherwise, it is a short-term capital loss (STCL).
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Set-off and Carry Forward:
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STCL can be set off against any capital gains (short-term or long-term) in the same financial year.
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LTCL can only be set off against long-term capital gains.
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If you cannot fully set off the loss in the current year, you can carry forward the capital loss for 8 subsequent years and set off against eligible capital gains.
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Claiming the Loss in ITR:
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Report the loss under Capital Gains schedule in ITR (ITR-2 or ITR-3 depending on your case).
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Keep supporting documents like proof of investment, bankruptcy declaration, and proof of loss.
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Note on Bad Debt:
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Since NCDs are investments, loss is capital loss, not business loss or bad debt.
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If you had advanced money as a loan (and not investment), it might be treated differently as bad debt, but not in this case.
Summary:
You can claim the loss on your SREI NCD investment as a capital loss in your income tax return and set off or carry forward as per capital gains rules.