What is Liquidation

It means winding up of the company.

On winding up, the assets of the company are sold. Payment made for liabilities.

If some amount left after paying for liabilities, it is distributed to shareholders

 

There are 2 events

1.Distribution of asset by Company to Shareholders

This is not regarded as transfer and hence no Capital Gain imposed in this Case

 

2. Sale of Assets by Shareholder

In this case,  Capital Gain is applicable

 

How is Capital Gain Computed?

COA =

Fair Market value of asset received 

Less

Deemed Dividend (Section 2 (22) (C))

 

If after sometime shareholder sells such assets than his capital gains will be computed as follows

          FVC (Selling price of assets)

          less

          COA  (it will be FMV as on Distribution of asset at liquidation and not cost)

 

Distribution of assets by a company on liquidation  - Special Cases

 

  1. Income Tax
  2. Income from Capital Gains
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CA Maninder Singh
CA Maninder Singh is a Chartered Accountant for the past 8 years. He provides GST Training in Delhi. Register now.