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?


Fair Market value of asset received 


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)


          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

About the Author

CA Maninder Singh's photo - Expert in Practical Accounts, Taxation and Efiling
CA Maninder Singh
CA Maninder Singh is a Chartered Accountant for the past 11 years. He also provides Accounts Tax GST Training in Delhi and Pune.