Learn With ETMarkets: Delisted stock lying in your demat account? Here’s what you can do

Delisting

Delisting is a process in which shares of a listed company have been removed from the stock exchanges completely for buying and selling purposes. These shares are governed by the market regulator, the Securities and Exchange Board of India (Sebi) and can’t be traded on NSE and BSE. Think of it as the reverse process of an IPO, whereby a public company goes private.

The delisting of shares, be it involuntary or voluntary, can financially impact the investors who own these shares. In the case of voluntary delisting, companies choose to delist themselves and opt for the permanent removal of securities from the stock exchange. The reasons for this may include mergers with another company, costs of being publicly listed outweighing its benefits, or being bought by private equity firms. Whereas, involuntary delisting refers to the forced removal of listed company shares from the stock exchange for reasons like non-compliance with listed guidelines, low share price or late report filing. But, even though you can not sell your shares on any exchange there are still options via which you can compute and claim such losses.

Even if the shares are delisted from stock exchanges, they are still lying in your demat account as delisting cannot amount to the extinguishment of the shares or your rights in the shares. There are ways to claim the losses on shares such as:

1. After being delisted, shares can continue to trade over-the-counter on the OTC bulletin board and shareholders can still trade the stock, though it is likely that the market will be less liquid.
2. You can transfer these shares from your demat account through off-market transactions at a very nominal price to someone you know. The holding period requirement would be 24 months for qualifying as a long-term loss but you will be able to avail the benefit of indexation on the cost of such shares.

3.Loss incurred by a delisted account can be adjusted against your gains under the head ‘Capital Gains’ as income under this head generally becomes taxable only when there is the transfer of the capital asset held by you. As per the provisions of income tax laws, gains are taxable and the losses incurred on the transfer of capital assets can be set off against other gains.

The Bottom Line

Whether a company gets delisted voluntarily or involuntarily, there will always be an option for you as an investor to offload your shares. Sebi has ensured that delisting does not directly affect shareholders’ rights or claims on the delisted company. Delistings can provide profitable investment opportunities or shareholders may lose money.

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The author is Founder & CEO, Alice Blue)