Contract Cancellation Charges under the Income-tax Act, 2025: When Is a Business Loss Treated as Speculative Loss

 By CA Surekha S Ahuja

A business enters into a contract to purchase or sell goods. The market moves, the customer defaults, the supplier fails to deliver, or commercial circumstances make performance impossible. The contract is cancelled and one party pays compensation or cancellation charges to the other.

The payment may be commercially genuine, supported by contractual documents and recorded in the books. Yet, for income-tax purposes, a critical question remains:

Is the payment an ordinary business loss arising from breach of contract, or is it a speculative loss because the underlying contract was settled without actual delivery?

The distinction is financially significant. An ordinary business loss can generally be adjusted against eligible business profits, while a speculation loss can be adjusted only against profits of another speculation business. The latter also carries a shorter carry-forward period.

A company earning substantial profits from its regular business may therefore have to pay tax on those profits even while carrying an unabsorbed speculation loss arising from a genuine commercial transaction.

The Income-tax Act, 2025 retains this important distinction. The correct treatment depends not merely on the fact that goods were not delivered, but on the legal character of the transaction, the manner in which the contract came to an end and the evidence supporting the payment.

1. The statutory test under the Income-tax Act, 2025

Section 66(31) defines a speculative transaction as a transaction in which a contract for the purchase or sale of a commodity, including stocks and shares, is periodically or ultimately settled otherwise than by actual delivery or transfer of the commodity or scrips.

However, the definition specifically excludes four categories:

Statutory exclusion	Nature of transaction
Section 66(31)(a)	Specified derivative transactions covered by section 66(33).
Section 66(31)(b)	Contracts relating to raw materials or merchandise entered into in the course of manufacturing or merchandising business to guard against future price fluctuations in respect of contracts for actual delivery of goods manufactured or merchandise sold.
Section 66(31)(c)	Contracts in stocks and shares entered into by a dealer or investor to guard against price fluctuations in their holdings.
Section 66(31)(d)	Jobbing or arbitrage transactions entered into by a member of a forward market or stock exchange in the ordinary course of business to guard against loss.

Section 66(33) separately defines specified derivative transactions and lays down the prescribed conditions relating to the nature of the derivatives, the recognised exchange or permitted intermediary and the time-stamped contract documentation identifying the client and PAN.

The starting point, therefore, is not simply whether the contract was completed. The tax officer must examine whether the transaction falls within the statutory definition and whether any of the specific exclusions applies.

A contract involving goods that are not ultimately delivered does not automatically become speculative. Equally, describing a payment as cancellation charges does not automatically make it an ordinary business loss.

2. Cancellation charges: breach of contract or settlement without delivery?

This is the most important distinction.

A contract may come to an end in different ways:

• A party may fail to perform its contractual obligation, resulting in a breach.

• The parties may mutually agree to terminate the contract and accept a payment in discharge of their obligations.

• The parties may settle the original transaction by paying or receiving the difference between the agreed price and the prevailing market price without actual delivery.

• A contract may contain a cancellation clause prescribing an amount payable upon termination.

These situations may have different legal and tax consequences. The accounting description or the use of the expression "cancellation charges" cannot decide the tax treatment.

The distinction under the Indian Contract Act, 1872

Two provisions are particularly relevant:

Section 63 – Promisee may dispense with or remit performance

A promisee may dispense with or remit performance of a promise, wholly or in part, or accept any satisfaction which the promisee thinks fit.

Section 73 – Compensation for loss or damage caused by breach of contract

Where a contract is broken, the party suffering from the breach is entitled to compensation for loss or damage caused by that breach, subject to the statutory principles governing such compensation.

The distinction matters because a contract being discharged by an agreed alternative satisfaction is not necessarily the same as a claim for damages arising from breach of contract.

A payment genuinely arising as compensation for breach may not amount to settlement of the original purchase or sale contract within the meaning of the speculative transaction definition.

However, where the parties effectively close out the original contract by paying the price difference instead of delivering the goods, the transaction may attract the speculative transaction provisions.

A pre-agreed cancellation clause also requires careful examination. The existence of such a clause does not, by itself, settle the tax classification. Its operation, the parties' conduct and the actual nature of the payment must be established.

3. Supreme Court ruling: Damages for breach are not automatically speculative loss

In CIT v. Shantilal (P.) Ltd. (1983) 144 ITR 57 (SC), the Supreme Court examined whether compensation awarded for breach of a commodity contract amounted to settlement of the contract otherwise than by actual delivery.

The assessee had contracted to sell 200 kg of folic acid at ₹440 per kg. The market price subsequently increased substantially, reportedly reaching approximately ₹2,000 per kg. The assessee could not fulfil the contract. The dispute resulted in an arbitration award of ₹1.50 lakh as damages, which was made a rule of the court by consent.

The Supreme Court distinguished between:

• A contract being settled by accepting an alternative satisfaction in place of performance; and

• A dispute arising because of breach of contract, where damages become payable under section 73 of the Contract Act.

The Court held that an award of damages for breach of contract is not the same as the promisee accepting an alternative satisfaction in place of the original contractual performance. What was settled was the dispute between the parties, not the original commodity contract in the statutory sense.

The loss was consequently held not to be speculative.

Practical principle: A genuine claim for damages arising from breach of a commercial contract should not be treated as speculative merely because the goods were not delivered and compensation was paid.

The judgment was delivered under section 43(5) of the Income-tax Act, 1961. Its reasoning is highly relevant to the corresponding definition in section 66(31) of the 2025 Act, whose central test similarly concerns settlement otherwise than by actual delivery. The facts and contractual arrangements must nevertheless be examined in each case.

4. Recent Gujarat High Court order: DML Exim and cancellation charges in export business

In Pr. CIT v. DML Exim Pvt. Ltd., R/Tax Appeal Nos. 115 and 116 of 2021, common order dated 21 October 2026, the Gujarat High Court considered Revenue appeals involving substantial contract cancellation charges.

DML Exim was engaged, among other activities, in trading agricultural products and exporting cotton and other agricultural commodities.

The relevant amounts included:

Assessment year	Cancellation charges involved
AY 2011–12	₹10,04,33,270
AY 2012–13	₹2,80,05,500

The Assessing Officer had questioned the genuineness of the cancellation charges for AY 2011–12 and treated the amount for AY 2012–13 as speculative, contending that the contracts had been settled without delivery and that the loss was not part of the export business.

The assessee explained that it entered into export contracts with proposed foreign purchasers, specifying the goods, supply period and agreed rates. Failure to fulfil the contractual terms resulted in settlement with the proposed purchaser and payment of cancellation charges. The goods involved were those dealt with in the ordinary course of its business.

The CIT(A) allowed the claim and the Tribunal upheld the relief.

The Revenue carried the matter to the Gujarat High Court. The Court dismissed both appeals and declined to admit the proposed questions of law.

Important legal qualification: The High Court's order should not be represented as a fresh substantive ruling that all export contract cancellation charges are non-speculative. The relevant proposed questions were not admitted for consideration. The order is useful as a factual illustration of the controversy, but it does not lay down a new ratio deciding the speculative character of cancellation charges.

The case nevertheless highlights the importance of establishing the connection between the cancelled contract, the goods dealt with by the assessee, the export business and the actual reason for payment.

5. Ordinary business loss versus speculation loss: the actual tax difference

The classification is not merely a technical accounting or legal issue. It directly determines how much of the business profit can be reduced for tax purposes.

The Income-tax Act, 2025 provides different treatment under sections 112 and 113.

Particulars	Ordinary business loss	Speculation business loss
Governing provision	Section 112	Section 113
Current-year adjustment	Subject to the normal set-off provisions, can be adjusted against eligible income.	Can be adjusted only against profits of another speculation business.
Adjustment against ordinary business profit	Generally permitted under the applicable set-off provisions.	Not permitted.
Adjustment against speculation profit	Permitted, subject to normal provisions.	Permitted.
Carry-forward period	Up to 8 succeeding tax years.	Up to 4 succeeding tax years.
Future-year adjustment	Against profits and gains of any business or profession carried on by the taxpayer.	Only against profits and gains of speculation business.
Commercial consequence	The loss can reduce eligible taxable business income.	The loss may remain unabsorbed despite substantial profits from ordinary business.

Section 112(1) deals with business losses other than losses sustained in speculation business. Section 112(2) permits carry-forward for eight succeeding tax years.

Section 113(1) restricts the set-off of speculation loss to profits and gains of another speculation business. Section 113(2) provides for carry-forward of the unabsorbed amount, and section 113(3) limits the period to four succeeding tax years.

The difference is therefore both in the scope of adjustment and the time available to utilise the loss.

Numerical illustration: Same loss, different tax exposure

Assume a company has the following results:

Particulars	Amount
Profit from regular business	₹5 crore
Contract cancellation loss	₹1 crore
Other income	Nil

Case A: Cancellation charges treated as ordinary business loss

Assuming the loss is otherwise allowable and eligible for adjustment:

Particulars	Amount
Regular business profit	₹5 crore
Less: Ordinary business loss	₹1 crore
Taxable business income	₹4 crore

The company gets the benefit of the genuine business loss against its eligible business profits.

Case B: Cancellation charges treated as speculation loss

Particulars	Amount
Regular business profit	₹5 crore
Speculation loss	₹1 crore
Adjustment against regular business profit	Not permitted
Taxable business income	₹5 crore
Speculation loss carried forward	₹1 crore

The company remains taxable on ₹5 crore of regular business profit. The ₹1 crore speculation loss can be carried forward for adjustment only against eligible speculation profits within the prescribed four-year period.

The difference is ₹1 crore in taxable income, even though the commercial loss incurred by the company is identical in both cases.

This illustration assumes the loss is otherwise deductible, there are no other adjustments and the company has no speculation-business profits. Actual tax payable will depend on the applicable tax rate, surcharge and cess.

What if the company has speculation profits?

Suppose the company also earns ₹30 lakh from another speculation business.

Particulars	Amount
Ordinary business profit	₹5 crore
Speculation business profit	₹30 lakh
Speculation loss	₹1 crore
Loss adjusted against speculation profit	₹30 lakh
Balance speculation loss carried forward	₹70 lakh

The ₹30 lakh speculation profit can be absorbed by the speculation loss. However, the remaining ₹70 lakh cannot be adjusted against the company's ₹5 crore ordinary business profit.

It remains subject to the four-year carry-forward restriction.

Is speculation loss taxed at a higher rate?

No. The distinction does not create a separate tax rate for speculation loss.

The disadvantage is the restriction on utilisation. Where a speculation loss cannot be adjusted against ordinary business profits, the taxpayer's current taxable income remains higher. The loss may also expire if the taxpayer does not earn sufficient speculation profits within the permitted carry-forward period.

For a business with substantial regular profits but no independent speculation activity, this can create a significant cash-flow and tax-planning disadvantage.

6. Speculation business is computed separately

Section 26(3), read with the provisions governing computation of speculation business income, requires the profits and losses of speculation business to be dealt with separately.

This separation is important. A loss classified as speculation loss cannot be merged with the ordinary business result merely because both arise from transactions connected with the taxpayer's overall commercial operations.

The tax computation should therefore clearly distinguish:

• Ordinary business income and expenditure;

• Speculation business income and expenditure;

• Current-year speculation loss;

• Brought-forward speculation loss; and

• Eligible speculation profits available for adjustment.

The classification should be established before the return is prepared. A mere ledger description or accounting entry cannot override the statutory character of the transaction.

7. Special rule for companies dealing in shares

Section 113(5) contains a separate deeming provision for a company where any part of its business consists of the purchase and sale of shares of other companies. To that extent, the company is deemed to carry on speculation business.

However, section 113(6) provides exceptions where:

• The company's gross total income consists mainly of income chargeable under the heads of house property, capital gains or other sources; or

• Its principal business is trading in shares, banking, or granting loans and advances.

This is a specific statutory rule concerning certain share transactions. It should not be confused with the general test for determining whether cancellation charges under a commodity or merchandise contract are speculative.

8. When is a cancellation payment allowable as business expenditure?

Even if a payment is not speculative, its deductibility must independently satisfy the conditions for business expenditure.

For tax years governed by the Income-tax Act, 2025, section 34(1) permits expenditure laid out or expended wholly and exclusively for the purposes of business or profession, subject to the statutory exclusions.

The payment should therefore be:

• Incurred wholly and exclusively for business;

• Connected with the taxpayer's existing business operations;

• Revenue in nature and not capital or personal expenditure;

• Genuine and supported by evidence; and

• Not incurred for a purpose prohibited by law.

Section 34(2) excludes specified categories, including expenditure incurred for an offence or purpose prohibited by law, corporate social responsibility expenditure covered by the provision and political-party publication advertisements. Section 34(3) further explains certain categories of prohibited expenditure, including specified unlawful benefits, compounding of offences and settlements of proceedings relating to notified legal contraventions.

The fact that a payment is contractually described as compensation does not, by itself, establish deductibility. Its commercial purpose, genuineness and legal character must all be demonstrated.

9. Evidence that can protect the business from an adverse classification

The most effective defence is built when the contract is entered into and the cancellation occurs—not after a tax notice is received.

The finance team should maintain the following records:

Evidence	What it should establish
Original purchase or sale contract	Goods, quantity, price, delivery terms and contractual obligations.
Purchase order, proforma invoice or export order	Commercial purpose and connection with actual business operations.
Correspondence with the counterparty	Reason for non-performance, default, dispute or cancellation.
Cancellation agreement or termination notice	Legal basis on which the contract came to an end.
Debit note, credit note or compensation working	How the amount payable was calculated.
Arbitration award, settlement agreement or legal correspondence, where applicable	Whether the payment represents damages for breach or an agreed alternative settlement.
Bank payment proof and ledger entries	Actual payment, identity of the recipient and accounting treatment.
Management approval and internal note	Commercial rationale, business necessity and decision-making trail.

The evidence should establish a clear sequence:

Original contract → commercial obligation → failure or breach → legal basis for compensation → calculation of loss → actual payment.

If the payment is merely a price difference on a contract closed without delivery, the tax officer may have grounds to examine it as a speculative settlement. If it is genuine compensation for breach, supported by contractual and legal evidence, the taxpayer has a stronger basis to claim ordinary business loss.

10. Common situations that can trigger tax disputes

Situation	Principal tax risk	Recommended examination
Buyer defaults and seller receives damages	Whether payment is damages for breach or settlement of the original contract	Examine breach, claim, settlement and legal basis.
Seller fails to deliver and pays compensation	Whether payment is compensation or price-difference settlement	Examine contractual obligations and computation of damages.
Parties mutually cancel a contract at a fixed amount	Whether the parties have accepted alternative satisfaction in place of performance	Examine cancellation clause and actual conduct.
Contract is closed by paying the market-price difference	Risk of speculative transaction	Examine whether the original contract was settled without delivery.
Export order is cancelled by foreign buyer	Risk of disallowance or speculative classification	Establish export-business nexus, buyer default and compensation terms.
Cancellation charges are paid to related parties	Risk of genuineness and commercial-purpose challenge	Establish independent commercial rationale, basis of computation and actual payment.
Cancellation charges are booked through journal entries without settlement evidence	Risk of disallowance	Obtain counterparty confirmation, settlement documents and payment evidence.

11. Practical action plan for directors, CFOs and tax teams

Before accepting or paying cancellation charges, the business should undertake a structured review.

At the contract stage

• Draft clear delivery, default, termination and compensation clauses.

• Distinguish damages for breach from an agreed price-difference settlement.

• Retain evidence of the underlying commercial purpose and expected delivery.

At the cancellation stage

• Record the actual reason for non-performance.

• Obtain written confirmation from the counterparty.

• Determine whether the payment is compensation for breach or consideration for agreed discharge of contractual obligations.

• Document the calculation of the amount.

At the accounting and tax-computation stage

• Record the payment under an appropriate ledger head.

• Reconcile the amount with the original contract and settlement documents.

• Examine deductibility under section 34.

• Apply the speculative transaction test under section 66(31).

• Maintain separate computation and carry-forward records if the amount is classified as speculation loss.

Before filing the return

The CFO and tax adviser should be able to answer five questions:

1. Was there a genuine contract for purchase or sale of goods?

2. Was the contract connected with the ordinary business of the taxpayer?

3. Why was the contract not performed?

4. Was the payment compensation for breach or settlement of the original contract without delivery?

5. Does the evidence support the amount, its commercial purpose and its legal character?

If these questions cannot be answered with documentary evidence, the claim is exposed to avoidable tax litigation.

12. Transition from the Income-tax Act, 1961 to the Income-tax Act, 2025

The new Act came into force on 1 April 2026. The applicable law must be identified by reference to the tax year in which the relevant income or loss arose.

Period	Applicable law
FY 2025–26 and earlier	Income-tax Act, 1961
Tax Year 2026–27 beginning 1 April 2026 and later	Income-tax Act, 2025

Accordingly, a cancellation loss arising in FY 2025–26, corresponding to AY 2026–27, continues to be governed by the 1961 Act, even if the assessment or appeal takes place after 1 April 2026.

Section 536(2)(c) preserves the application of the repealed Act to pending proceedings and proceedings initiated after commencement in respect of tax years beginning before 1 April 2026. The relevant saving provisions also preserve the original character of eligible brought-forward losses. An ordinary business loss does not become a speculation loss merely because the new Act has commenced, and a speculation loss does not become an ordinary business loss.

The Income-tax Department's transition guidance specifically confirms that losses under the old Act retain their original character and continue under the corresponding provisions of the new Act, subject to the applicable conditions and remaining carry-forward period.

13. The real tax risk is classification, not merely cancellation

A business may incur cancellation charges because of genuine commercial difficulties—customer default, supply-chain disruption, export restrictions, price volatility or failure of contractual performance.

The tax treatment should follow the legal and commercial substance of the transaction, not merely the fact that delivery did not take place.

The Supreme Court's decision in Shantilal provides an important distinction between damages for breach and settlement of a contract otherwise than by delivery. The DML Exim litigation demonstrates how substantial cancellation claims can become the subject of scrutiny when the business connection, genuineness and nature of settlement are questioned.

For directors and CFOs, the practical lesson is clear:

• Do not assume every cancellation payment is a business loss.

• Do not accept every tax officer's conclusion that non-delivery automatically makes the loss speculative.

• Establish the contractual facts, legal basis and commercial purpose.

• Preserve evidence at the time of cancellation.

• Assess the tax impact before finalising the return.

The real question is not simply whether the contract was cancelled. It is whether the business suffered damages because the contract was breached, or whether the parties settled the original transaction without delivery. That distinction can determine whether a ₹1 crore loss reduces taxable business profits today or remains locked in a separate speculation-loss account, subject to a four-year utilisation window.

DPT-3 Part 2: When the Filed Return Does Not Match the Books—Correction, Legal Exposure and Director Responsibilities

 By CA Surekha S Ahuja

Part 2 of our DPT-3 compliance series

Read Part 1: Form DPT-3 for FY 2025–26: The Ultimate Practical Filing Guide

Filing Form DPT-3 is not the end of the compliance exercise. The more difficult situation often arises later: the filed form does not agree with the books, the auditor identifies a different balance, a receipt has been incorrectly treated as an excluded transaction, or the company discovers that an amount reported as a loan may actually fall within the definition of a deposit.

What should the company do then?

Can a completed DPT-3 be revised? Does a mismatch automatically attract a penalty? Can a company regularise an incorrectly classified receipt by filing another form? What should directors do when the error is discovered after the financial statements have been approved?

These are not merely filing questions. They require a distinction between a reporting error, an accounting error and a substantive violation of the Companies Act, 2013.

This article deals with that distinction and provides a practical corrective-action framework.

1. First establish what DPT-3 was required to report

Section 2(31) of the Companies Act, 2013 defines a deposit broadly to include a receipt of money by way of deposit, loan or in any other form, subject to the exclusions prescribed under the Rules.

Rule 2(1)(c) of the Companies (Acceptance of Deposits) Rules, 2014 specifies transactions that are not treated as deposits, subject to the conditions applicable to each category.

Rule 16 requires every company to which the Rules apply, other than a Government company, to file Form DPT-3 with the Registrar by 30 June, reporting the relevant position as at 31 March. The Rules do not apply to specified categories such as banking companies, RBI-registered NBFCs and registered housing finance companies, subject to the terms of Rule 1.

Form DPT-3 is used for:

• Return of deposits;

• Particulars of transactions not considered deposits under Rule 2(1)(c); or

• Both categories, where applicable.

The form is therefore not simply a statement of loans appearing in the balance sheet. It is a statutory return based on the legal character of the underlying receipts.

A company should not assume that a receipt is outside the deposit provisions merely because it is described in the ledger as a loan, advance, security deposit, share application money or director contribution.

The legal test is the nature of the receipt, the identity and status of the person from whom it was received, the purpose, the applicable exclusion and whether the conditions of that exclusion have been satisfied.

2. The first corrective step: reconcile the return with the underlying transactions

When a discrepancy is identified, do not immediately prepare another DPT-3. First establish the correct position.

The reconciliation should cover:

1. The filed DPT-3, its attachments, SRN and MCA filing status.

2. The trial balance and relevant general ledger accounts.

3. Bank statements and transaction-wise receipts and repayments.

4. The audited financial statements and notes to accounts.

5. Loan agreements, declarations, Board approvals and other supporting documents.

6. The legal basis for treating each receipt as a deposit or as an excluded transaction.

Prepare a transaction-wise reconciliation showing the opening balance, receipts during the year, repayments, adjustments and closing balance as at 31 March.

Common discrepancies and the appropriate response

Discrepancy identified	What must be verified	Corrective action
DPT-3 does not agree with the ledger	Whether an account was omitted, duplicated, netted off or incorrectly classified	Identify the source of difference and prepare a transaction-wise reconciliation
A loan is reported as not a deposit	Whether the lender and transaction qualify under the specific Rule 2(1)(c) exclusion	Re-examine the exclusion and retain supporting evidence
Director's or relative's money is omitted	Status of the person on the date of receipt, company type and required declaration	Verify the exclusion conditions and applicable disclosures
Share application money remains outstanding	Whether the offer complied with the Act, allotment was completed within the prescribed period or refund was made	Examine the offer, allotment records and 60-day/15-day statutory timeline
Customer advance remains unadjusted	Whether it relates to supply of goods or services and whether the prescribed time limit or exception applies	Check the contract, supply position, adjustment and any legal proceedings
Repayment occurred after 31 March	Actual balance outstanding on the reporting date	Report the 31 March position correctly and document the subsequent repayment separately
DPT-3 differs from the audited financial statements	Whether the two records contain an error or reflect different statutory reporting requirements	Resolve the accounting and legal classification issues independently
Auditor's declaration or supporting evidence is missing	Applicable Form DPT-3 requirements and nature of the reported transaction	Obtain the required declaration or supporting documentation and determine the appropriate filing action

A particularly important point concerns year-end cut-off. If a company had an outstanding liability of ₹50 lakh on 31 March and repaid it on 15 April, the repayment does not retrospectively reduce the 31 March balance to nil. The subsequent repayment should be documented separately.

3. Can a company revise a completed DPT-3?

This is one of the most important practical questions.

The Companies (Acceptance of Deposits) Rules, 2014 prescribe the annual filing obligation. The MCA's DPT-3 Instruction Kit explains the initial submission and resubmission process. However, the Rules and the published instruction kit do not establish a general statutory revision facility for every completed DPT-3.

A company must therefore distinguish between a form returned for resubmission and a form that has already been completed and taken on record.

What should the company do?

Situation A: The form is pending or has been marked for resubmission

Follow the resubmission instructions communicated through the MCA system. Correct the specified fields and attachments, verify the revised particulars and complete the process within the permitted period.

Retain the original submission, resubmission remarks, corrected documents and final acknowledgement.

Situation B: The form has been completed, but a clerical or reporting error is discovered

Do not assume that filing another DPT-3 will automatically replace the earlier return.

The company should:

• Preserve the filed form, SRN, attachments and acknowledgement.

• Prepare a written reconciliation identifying the exact error.

• Establish the correct reporting position and the reason for the discrepancy.

• Obtain appropriate professional advice on the available MCA/Registrar route.

• Make a documented representation through the applicable MCA/ROC channel where required.

• Retain the correspondence and evidence of corrective action.

The company should not describe a fresh filing as a revised return unless the applicable MCA process specifically permits it.

Situation C: The error concerns the legal classification of a receipt

A correction to the reported figure is not sufficient if the underlying transaction was incorrectly treated as outside the definition of deposit.

The company must first determine whether the receipt actually qualifies for an exclusion under Rule 2(1)(c). If it does not, the company must assess the consequences under Chapter V of the Act and the applicable Rules.

Situation D: The books or financial statements are also incorrect

A DPT-3 correction does not correct the accounting records. The company must separately examine the applicable accounting standards, company-law requirements, audit implications and the procedure for correcting the financial statements, where necessary.

Important: The MCA Instruction Kit also cautions against filing another DPT-3 for the same financial year. A duplicate annual filing should not be used as an assumed correction mechanism.

4. The critical legal distinction: reporting error versus unlawful acceptance of deposits

A DPT-3 discrepancy does not automatically mean that the company has violated the deposit provisions. Equally, a correctly completed form does not make an otherwise unlawful receipt legal.

The relevant provisions must be examined according to the facts.

Provision	Legal subject	When it becomes relevant
Section 2(31)	Definition of deposit	To determine whether a receipt is a deposit under the Act
Rule 2(1)(c)	Exclusions from the definition of deposit	To establish whether a particular receipt qualifies for an exclusion and whether its conditions are satisfied
Sections 73 and 76	Acceptance of deposits by companies and eligible public companies	Where the receipt is legally a deposit and the company must establish whether it was permitted to accept it
Section 74	Deposits accepted before commencement of the Companies Act, 2013	For the relevant legacy deposits and statutory repayment requirements; not as a general route to regularise fresh receipts
Section 76A	Punishment for contravention of section 73 or section 76	Where deposits have been accepted contrary to the prescribed manner or conditions, or repayment obligations have not been met
Rule 16	Annual DPT-3 filing	For the reporting obligation and filing requirements
Rule 16A	Specified disclosures in financial statements	For disclosure of money received from directors and, in the case of private companies, relatives of directors
Rule 21	Residual punishment for contravention of the Deposit Rules	Where the relevant Rules are contravened and no punishment is provided in the Act
Sections 447 and 448	Fraud and false statements	Only where the statutory ingredients of fraud or a knowingly false statement are established

Do not apply Section 76A mechanically

Section 76A is not a general penalty provision for a wrong figure in DPT-3.

It addresses a company accepting, inviting or permitting deposits in contravention of the manner or conditions prescribed under section 73 or section 76 or the Rules made thereunder, or failing to repay deposits or interest within the prescribed time.

The consequences are serious. Under the current provision:

• Company: In addition to repayment of the deposit and interest, a fine of not less than ₹1 crore or twice the amount of deposit accepted, whichever is lower, and which may extend to ₹10 crore.

• Officer in default: Imprisonment which may extend to seven years and fine of not less than ₹25 lakh, which may extend to ₹2 crore.

The proviso to section 76A further provides for action under section 447 where it is proved that the officer knowingly or wilfully contravened the provisions with the intention to deceive the company, shareholders, depositors, creditors or tax authorities.

Thus, a typographical error and an unlawful deposit transaction must never be treated as the same legal event.

Rule 21 is not an automatic penalty for every mismatch

Rule 21 provides a residual penalty where a company referred to in section 73(2), an eligible company inviting deposits or another person contravenes a provision of the Deposit Rules for which the Act does not provide a punishment.

The prescribed fine may extend to ₹5,000, with a further fine that may extend to ₹500 for every day after the first day during which a continuing contravention continues.

Its application requires examination of the exact Rule contravened, the person covered by the provision and whether the Act provides a specific punishment. It should not be presented as an automatic penalty for every DPT-3 discrepancy or delay.

5. Excluded transactions: the evidence must support the classification

A substantial part of DPT-3 risk arises not from missing figures but from incorrect reliance on exclusions under Rule 2(1)(c).

Some common examples deserve particular attention.

A. Money received from directors and relatives

The exclusion applies to money received from a person who, at the time of receipt, was a director of the company. It also covers money received from a relative of a director of a private company.

However, the prescribed written declaration must be furnished at the time of giving the money, confirming that the amount is not being given out of funds acquired by borrowing or accepting loans or deposits from others. The company is also required to disclose the details of money so accepted in its Board's Report.

The company should retain:

• Proof of the person's status on the date of receipt;

• The written declaration obtained at the time of giving the money;

• Bank evidence establishing the receipt; and

• The relevant Board's Report and financial-statement disclosures.

A declaration obtained much later should not casually be treated as proof that the prescribed condition was fulfilled at the time of receipt.

B. Share application money and advances towards securities

The exclusion applies to money received pursuant to an offer made in accordance with the Act towards subscription to securities, including share application money or advance towards allotment, provided the amount is appropriated only against the amount due on allotment.

The Rules provide a specific timeline:

• Securities should be allotted within 60 days from receipt of the application money or advance.

• If allotment cannot be made, the money should be refunded within 15 days from completion of the 60-day period.

• If it is not refunded within that further period, the amount is treated as a deposit under the Rules.

Adjustment of the money for another purpose is not treated as a refund.

The company should examine the offer documents, allotment records, approvals, refund evidence and statutory timeline. An amount cannot be retained indefinitely under the label of share application money.

C. Business advances

Advances received in the course of business are not automatically excluded merely because they are described as customer advances.

For an advance for supply of goods or provision of services, the prescribed condition generally requires appropriation against the supply within 365 days from the date of acceptance. The time limit does not apply where the advance is the subject matter of legal proceedings before a court of law.

Other categories, including advances relating to immovable property, contract-performance security deposits and advances under long-term projects for supply of capital goods, have their own conditions.

The company should maintain a separate ageing analysis of customer advances, supported by contracts, purchase orders, invoices, supply records and correspondence.

D. Inter-corporate loans

Amounts received by a company from another company are covered by a specific exclusion under Rule 2(1)(c).

However, the company should still examine other legal requirements that may apply to the transaction, including the provisions governing inter-corporate loans, investments and guarantees under section 186, where relevant.

An exclusion under the Deposit Rules does not mean that every other company-law or regulatory requirement disappears.

6. Financial statements and auditor declaration: the second level of compliance

The DPT-3 reconciliation should not end with the filing record. The company must also check whether the underlying accounting and disclosures are correct.

Particular attention should be given to:

• Correct classification of deposits, borrowings, advances and other liabilities;

• Outstanding balances and repayment terms;

• Interest accrued or payable;

• Related-party disclosures, where applicable;

• The disclosures required under Rule 16A;

• Prior-period errors and subsequent events; and

• Provisions or contingent-liability disclosures under the applicable accounting framework.

Rule 16A requires:

• Every company other than a private company to disclose, by way of notes to its financial statements, money received from a director.

• Every private company to disclose, by way of notes to its financial statements, money received from its directors or relatives of directors.

The company should verify the applicable disclosure and ensure that the note is not omitted merely because the amount has been reported in DPT-3.

Auditor's declaration under the 2022 amendment

The Companies (Acceptance of Deposits) Amendment Rules, 2022, notified through G.S.R. 663(E) dated 29 August 2022, amended Rule 16 to require the auditor's declaration to that effect in Form DPT-3.

The prescribed declaration in the form relates to the correctness of the amounts specified under Particulars of Deposits and Particulars of Liquid Assets. It should not be expanded by assumption into a blanket certification of every transaction reported as not considered a deposit.

The company should ensure that the auditor's declaration is obtained in the prescribed form and that the figures covered by it are supported by the relevant records.

Illustrative explanatory note

Where a material discrepancy has been identified and the company has completed its review, an explanatory note may be considered, suitably adapted to the facts and accounting requirements:

During the review of the particulars reported in Form DPT-3 for the year ended 31 March [year], the Company identified a difference of ₹[amount] relating to [brief description of transaction]. The Company has undertaken a transaction-wise reconciliation and examined the legal classification and accounting treatment of the relevant amount. Based on the outcome of this review, the Company has taken or is taking the appropriate corrective action in accordance with the applicable provisions of the Companies Act, 2013 and the Companies (Acceptance of Deposits) Rules, 2014.

This is only an illustrative disclosure. It should not be used to conceal an established liability, avoid a required provision or imply that a legal contravention has been cured merely because a reconciliation has been undertaken.

7. What should directors do when an error is discovered?

Directors should not leave the matter entirely to the accounts department or assume that the auditor's involvement transfers their statutory responsibilities.

A practical response should follow a documented sequence.

Step	Action required	Evidence to retain
1. Secure the filing record	Download the completed DPT-3, attachments, SRN and acknowledgement	Filed form and MCA records
2. Quantify the difference	Reconcile the reported balance with the books and bank records	Transaction-wise reconciliation
3. Establish legal classification	Identify the precise exclusion or deposit provision applicable	Agreements, declarations, approvals and legal analysis
4. Review accounting treatment	Check the ledger, financial statements and relevant notes	Accounting reconciliation and proposed adjustments
5. Assess substantive exposure	Examine whether deposits were accepted or retained contrary to law	Receipt and repayment history, statutory analysis
6. Determine the corrective route	Distinguish resubmission from a completed filing and seek appropriate MCA/ROC guidance	Correspondence and professional advice
7. Record management action	Place material issues before the appropriate authority and document the decision	Board or authorised-management records, as appropriate
8. Prevent recurrence	Introduce a pre-filing review and transaction-classification control	Approved compliance checklist and sign-off

Where the issue reveals a substantive contravention, the company should obtain specific legal advice on the available statutory remedies and obligations. It should not assume that a fresh DPT-3, a journal entry or a Board resolution can retrospectively validate an unlawful acceptance of deposits.

8. A three-level control system for future DPT-3 filings

The most effective way to avoid recurring discrepancies is to make DPT-3 a coordinated compliance exercise rather than a last-minute form-filing activity.

Finance team

• Maintain separate ledger mapping for deposits and transactions claimed to be excluded.

• Reconcile opening balances, receipts, repayments and closing balances.

• Maintain ageing of business advances and outstanding share application money.

• Obtain confirmations and supporting documents before year-end.

Company Secretary

• Verify the applicability of the Deposit Rules.

• Review the legal classification and supporting declarations.

• Check Rule 16, Rule 16A and the relevant Form DPT-3 requirements.

• Verify the filing purpose, attachments, approvals and MCA status.

Auditor

• Examine the relevant balances and supporting records.

• Review the auditor's declaration and reporting requirements under the amended Rule 16.

• Communicate material discrepancies and unresolved classification issues to management.

The company should retain a joint sign-off confirming that the books, statutory classification, financial-statement disclosures and DPT-3 particulars have been reviewed.

9. Five mistakes that can make the problem worse

1. Do not file another DPT-3 casually. First establish whether the original filing is pending, returned for resubmission or completed.

2. Do not change the year-end balance to reflect a later repayment. The reporting date remains 31 March.

3. Do not rely on ledger descriptions. The legal character of a receipt is determined by the Act and Rules.

4. Do not treat a disclosure as a cure. Reporting a transaction does not regularise an acceptance that contravened the law.

5. Do not label every mistake as fraud—or dismiss every mistake as harmless. The legal consequences depend on the actual facts, statutory ingredients and conduct of the persons concerned.

Casahuja Perspective

A DPT-3 mismatch is not necessarily a deposit violation. But an unexplained mismatch can expose a deeper weakness in the company's financial controls and statutory compliance.

The important question is not merely whether the form was filed on time. It is whether the company can establish, transaction by transaction, what money it received, from whom, under which legal provision, on what conditions and with what outstanding liability at the reporting date.

If the error is clerical, correct the record through the appropriate route. If the accounting is wrong, correct the accounting. If the legal classification is wrong, address the underlying transaction and its statutory consequences.

The safest DPT-3 is not the one that merely gets accepted on the MCA portal. It is the one whose every material figure and legal classification can withstand scrutiny.

GST Changes from 1 November 2026: Four Reliefs That Can Help Businesses Unlock Cash and Avoid Costly Mistakes

 Post-sale discounts, credit notes, GST refunds and export reliefs explained in simple language

By CA Surekha S Ahuja

A dealer earns a year-end rebate, but the original invoices do not mention it. A manufacturer has GST credit accumulating faster than it can use it. An exporter is waiting for a refund. A small business has filed its claim but is still waiting for the next step.

For businesses struggling with margins and working capital, these are not minor compliance issues. They affect the money available for stock, salaries, suppliers and growth.

From 1 November 2026, important GST amendments bring relief in these areas. Businesses gain greater flexibility in granting post-supply discounts, eligible inverted-duty refunds receive an express statutory basis for provisional processing, and the minimum refund restriction is removed for specified goods-export claims. Separate procedural changes aim to make refund processing faster.

The real benefit depends on understanding which restrictions have disappeared, which conditions remain and what action businesses should take.

At a glance: what becomes easier?

The problem	The relief	What you must still do
A post-sale discount was not agreed in advance or linked to specific invoices	Those two conditions are removed from the relevant discount provision	Issue the appropriate GST credit note and ensure the recipient reverses attributable ITC
Eligible ITC is accumulating under an inverted duty structure	Revised refund computation and provisional processing for eligible claims	Establish eligibility and reconcile the refund calculation
A goods-export refund falls below ₹1,000	The minimum restriction is removed for the specified category of goods exported with payment of tax	Satisfy the other applicable refund requirements
A refund application is waiting for acknowledgement	The prescribed acknowledgement period for relevant applications reduces from 15 days to 10 days	File a complete application and monitor the applicable procedure

1. Post-sale discounts: businesses can reward customers more flexibly

The old problem

A manufacturer offers a dealer a rebate based on annual purchases. The dealer achieves the target, but the rebate was not agreed in the manner previously required or cannot be linked to specific invoices.

Under the earlier Section 15(3)(b), excluding a post-supply discount from taxable value required an agreement entered into at or before the time of supply, specific linkage to the relevant invoices, and reversal of the attributable ITC by the recipient.

What changes from 1 November?

The agreement-timing and specific invoice-linkage requirements are removed.

A qualifying post-supply discount can therefore be excluded from taxable value even if the earlier conditions are not met. However, the supplier must issue a credit note in accordance with Section 34, and the recipient must reverse the ITC attributable to the discount in accordance with the law.

Example: A distributor earns a year-end rebate after achieving a purchase target. Under the amended provision, the absence of the earlier agreement or specific invoice linkage does not, by itself, prevent the rebate from qualifying.

The solution: Decide how each discount will be settled.

• A GST credit note may be used where the statutory conditions for reducing taxable value and output tax can be met.

• A financial or commercial credit note can settle the commercial concession without reducing output GST.

A financial credit note does not, by itself, reduce GST liability.

Who benefits? Manufacturers, wholesalers, dealers, distributors and businesses operating volume-based or performance-linked incentive schemes.

2. Credit notes: do not lose the benefit by missing the deadline

The amendment to Section 34(1) expressly recognises qualifying post-supply discounts as a ground for issuing credit notes. But the reporting deadline and the conditions for reducing output tax remain critical.

For relevant credit notes relating to FY 2025-26 supplies, the statutory cut-off is 30 November 2026 or the date of furnishing the relevant annual return, whichever is earlier.

A rebate recorded in the accounts is not enough. An internally prepared credit note is not the same as a credit note reported within the prescribed period.

Action before the deadline:

1. List all pending FY 2025-26 GST credit notes.

2. Check whether the relevant annual return has already been furnished.

3. Reconcile the credit notes with invoices, returns and the sales ledger.

4. Follow up with recipients on attributable ITC reversal.

5. Retain evidence supporting the tax adjustment.

IMS can help track document actions where applicable, but portal acceptance alone does not establish that every statutory condition has been met.

3. Inverted-duty refunds: more eligible ITC and a faster provisional route

The problem: A business pays more GST on eligible inputs than it collects on outward supplies. ITC accumulates, locking up money that could otherwise fund operations.

Two separate changes matter.

First: eligible input-services ITC. From 1 November 2026, qualifying input-services ITC availed on or after that date is included in the revised Net ITC computation for inverted-duty refunds under Rule 89(5), subject to the prescribed formula and conditions.

This is not a general refund for services taxed at a higher rate than outward supplies. The inverted-duty structure must still be established by comparing the tax rate on inputs with the rate on outward supplies.

Second: provisional refunds. The amendment to Section 54(6) expressly extends the provisional-refund framework to eligible inverted-duty claims. Under the risk-based process, 90% of the claimed amount is intended to be provisionally sanctioned for eligible claims, subject to the applicable conditions and exclusions.

For eligible claims, the system-based provisional refund order is to be generated within three working days of acknowledgement, including deemed acknowledgement, under the prescribed procedure.

This is not a guarantee that every applicant will qualify or receive payment without verification.

What about capital-goods ITC?

That is a later change. Eligible capital-goods ITC is brought into the prescribed refund computation from 1 April 2027, with attribution over 60 months and subject to the applicable rules. It must not be included as an entitlement available from November 2026.

The solution: Reconcile GSTR-1, GSTR-3B and GSTR-2B with the electronic credit ledger. Separate eligible input-goods and input-services ITC, apply the amended formula and check the relevant exclusions before filing.

4. Goods-export refunds: relief for small claims

The problem: An exporter has an eligible IGST refund on goods exported with payment of tax, but the amount is below ₹1,000.

The amendment to Section 54(14) removes the minimum refund restriction for this specified category of goods exports. Eligible claims should no longer be rejected merely because the refund falls below that minimum.

The change is specific to the stated category. It should not automatically be extended to LUT-based export refunds, export-of-services claims or unrelated refund applications.

The solution: Identify small outstanding IGST refund claims for goods exported with payment of tax. Reconcile export invoices, shipping bills and GST returns, and assess the claims under the amended provision.

The minimum-amount relief does not remove the need to establish the export or satisfy the other applicable refund conditions.

5. Refund processing: shorter acknowledgement time, but no promise of instant payment

The related CGST Rules amendments introduce several procedural improvements.

• Acknowledgement: The prescribed period for acknowledgement or communication of deficiencies in relevant refund applications reduces from 15 days to 10 days. Deemed acknowledgement applies where the prescribed action is not taken within the applicable period.

• Provisional refunds: The risk-based process provides for 90% provisional sanction for eligible zero-rated and inverted-duty claims, subject to prescribed conditions. For eligible claims, the system-based provisional refund order is to be generated within three working days of acknowledgement.

• Excess cash-ledger balances: Eligible excess balances in the electronic cash ledger can be refunded through an automated process, subject to applicable adjustments and conditions.

These mechanisms are different. A refund of excess cash in the electronic cash ledger is not the same as a refund of accumulated ITC, and provisional sanction is not final sanction of every claim.

The substituted FORM GST RFD-01 and specified related documentation changes take effect from 1 December 2026. Businesses should prepare for these separately from the changes effective on 1 November.

Important dates

Date	What to do
1 November 2026	Apply the amended statutory provisions and the relevant Rules from their respective commencement dates
30 November 2026	Report relevant FY 2025-26 credit notes by this date or the earlier date of furnishing the relevant annual return
1 December 2026	Follow the substituted RFD-01 requirements where applicable
1 April 2027	Apply the prescribed capital-goods ITC refund provisions to eligible credit from this date, subject to the Rules

A practical checklist for businesses

• Giving discounts? Review rebate schemes and decide between a GST credit note and a financial credit note.

• Have pending credit notes? Protect the statutory reporting deadline and follow up on recipient ITC reversal.

• Have accumulated ITC? Recalculate eligible inverted-duty refunds under the amended formula.

• Export goods with payment of tax? Review small eligible refund claims.

• Waiting for a refund? Check acknowledgement, deficiency communication and return reconciliation.

• Using ERP or accounting software? Update the relevant credit-note and refund workflows.

CA S. Ahuja Perspective

For a business struggling with tight margins, money locked in GST is money unavailable for operations. A rebate that cannot be correctly reflected in GST creates avoidable disputes. A missed credit-note deadline can cost the expected tax benefit. An inadequately reconciled refund claim can delay recovery even when the underlying entitlement exists.

The November changes offer genuine relief, but the benefit will depend on implementation.

Review the discount. Reconcile the credit. Recalculate the refund. Protect the deadline.

The real measure of GST reform is not the number of amendments announced. It is whether businesses can use the revised law to recover eligible money, reduce avoidable compliance friction and put cash back to work.

NRI & OCI Guide: Recovering Unclaimed Indian Shares and Dividends—From Claim to Repatriation

Part 2 of the series on recovering old Indian investments

By CA Surekha S Ahuja

An NRI family discovers that shares inherited from a parent are worth ₹35 lakh. The IEPF claim succeeds. But the original shareholder and spouse are both deceased, succession documents are incomplete, and the family wants to bring the recovered value abroad.

The claim is approved. Yet the family may still face three hurdles: proving who is legally entitled to the investment, receiving the shares or dividends correctly, and establishing the permitted route for transferring the money overseas.

Recovery is not complete merely because the claim succeeds. The investment must reach the rightful beneficiary through the correct legal, banking and tax route.

Part 1 covered how to trace forgotten investments and initiate recovery through IEPF. This part focuses on what happens next.

1. Inheritance: establish who is entitled to claim

For many NRI and OCI families, succession is the real obstacle. The original shareholder and spouse may both have died, heirs may live in different countries, a will may be missing, or names may differ across old share records and current identity documents.

A nominee is not automatically the beneficial owner of the entire investment. Nomination may facilitate transmission, but ultimate entitlement depends on the applicable succession law, the will, if any, and the facts of the case.

Depending on the circumstances, the company, registrar and transfer agent (RTA), or IEPF Authority may require death certificates, proof of relationship, a will, probate or other court documentation, a succession certificate, legal-heir evidence, indemnities or declarations.

No single document resolves every succession case. Where successive holders have died, establish the complete chain of succession and identify the persons entitled to claim. Obtain the receiving authority’s specific requirements before arranging overseas notarisation or initiating court proceedings.

SEBI’s 2025 circular introduced the reporting code “TLH” for transmission from nominee to legal heir, effective from 1 January 2026. This reporting change does not remove the underlying requirements for establishing entitlement and completing transmission.

2. Recovery: shares and dividends follow different routes

Once entitlement is established, the next steps depend on what is being recovered.

If the claim concerns shares:

1. Complete the IEPF claim requirements and follow through on the release of the securities.

2. Confirm the appropriate demat account with the depository participant and authorised dealer bank.

3. Complete the required demat credit or transmission.

4. If a sale is intended, verify the permitted sale route and applicable conditions before selling.

5. Establish the tax treatment and permitted route for remitting the sale proceeds.

An NRI-designated NRO non-PIS demat account may be relevant, but the correct arrangement depends on the investor’s status and the nature of the holding.

If the claim concerns unpaid dividends:

1. Establish the entitlement and complete the claim process.

2. Confirm the amount approved and the bank account into which payment will be made.

3. Check the relevant dividend period and applicable tax treatment.

4. Establish the permitted account and overseas remittance route, including any required documentation.

The distinction matters: shares must be released and credited before any subsequent sale, whereas dividends are monetary receipts. IEPF approval does not, by itself, complete demat transmission, a share sale or overseas remittance.

3. FEMA and tax: establish the permitted remittance route

The permitted route depends on the holder’s status, the nature and source of funds, the account in which they are held and the applicable rules.

The USD 1 million annual remittance-of-assets facility applies to specified eligible cases, including certain remittances involving NRI/PIO status, inherited assets, legacy and NRO balances. It is not an automatic entitlement for every OCI holder or every type of receipt. Confirm eligibility, applicable limits and supporting documents with the authorised dealer bank before remittance.

Tax compliance must be assessed separately. For remittances made on or after 1 April 2026, Form 145 replaces Form 15CA and Form 146 replaces Form 15CB, subject to the applicable rules and exemptions.

Under Rule 220 of the Income-tax Rules, 2026, the reporting route depends on factors including taxability, amount and whether the prescribed Assessing Officer’s certificate or accountant’s certificate is required.

Do not assume that every remittance requires both forms—or that inherited funds are automatically exempt from reporting or tax. The tax treatment of the underlying income must be examined separately; the date on which an old investment is recovered does not, by itself, determine its tax treatment.

4. The inheritance-to-repatriation roadmap

Treat the process as five distinct gates. Keep evidence at every stage and do not assume that completing one automatically completes the next.

Gate	Action	Evidence to retain
1. Establish inheritance	Identify the rightful claimant and resolve succession, nominee and documentation issues.	Death certificates, succession documents, proof of relationship and required declarations
2. Recover the asset	Complete the IEPF or company claim and follow through on release of shares or payment of dividends.	Claim outcome, correspondence and release/payment confirmation
3. Receive correctly	For shares, complete demat credit or transmission. For dividends, confirm receipt in the appropriate bank account.	Demat statement or bank credit evidence
4. Clear tax and FEMA requirements	Establish the source of funds, tax treatment, permitted account and sale/remittance route. Confirm applicable limits, certificates and exemptions.	Transaction records, tax working and required remittance documents
5. Repatriate and close	Complete the permitted remittance through the authorised dealer bank and preserve the transaction trail.	Bank confirmation, remittance advice and supporting records

Before instructing the bank to remit, ask it to confirm the applicable route, limits and outstanding documents in writing. Resolve succession gaps before incurring costs on repeated filings or overseas document authentication.

CA S.Ahuja perspective

Old investments often remain inaccessible not because the assets have disappeared, but because succession, account arrangements and remittance requirements were never brought together.

For NRI and OCI families, the route is clear: establish entitlement, recover the asset, receive it correctly, complete the applicable tax and FEMA checks, and remit only through a permitted route.

The objective is not merely to recover forgotten shares or dividends. It is to ensure that the investment reaches the rightful beneficiary lawfully, with ownership established and every step documented.

Unclaimed Shares and Dividends: How to Find, Trace and Recover Forgotten Investments Through IEPF

The certificates may be missing, the investor may have died, and the folio number may be unknown. Here is how families can trace old investments and pursue recovery.

By CA Surekha S Ahuja
27 October 2026

Your father bought shares decades ago. Your mother remembers receiving dividends, but the payments stopped. The certificates are missing, the company may have changed its name, and nobody knows the folio number.

Could the investment still be recovered?

Possibly. But the first task is not filing a claim. It is establishing what the investor owned, locating the records, identifying where the shares or dividends are held and proving who is entitled to claim them.

The recovery process begins with a search—not a form.

1. First establish where the investment is held

What you discover	What to do next
Shares and unpaid dividends remain with the company	Approach the company or its Registrar and Transfer Agent (RTA) for the applicable payment or transmission procedure.
Dividend has moved to IEPF, but shares have not	Establish the dividend entitlement and follow the applicable IEPF claim process for that amount.
Shares have been transferred to IEPF	Establish the claimant's entitlement and follow the IEPF recovery procedure.
The registered shareholder has died	Establish who can claim under the applicable nomination, joint-holder, transmission and succession requirements.
The company, certificate and folio are unknown	Reconstruct the investment history before filing.
An earlier claim was rejected or remains pending	Identify the specific deficiency and the action required to resolve it.

Do not assume every old investment has moved to IEPF. Equally, a failed online search does not prove that no investment exists.

2. When do unpaid dividends and shares move to IEPF?

Sections 124 and 125 of the Companies Act, 2013, govern the relevant unpaid-dividend and Investor Education and Protection Fund framework.

• Unpaid dividend: If a declared dividend remains unpaid or unclaimed for 30 days, the company must transfer it to the Unpaid Dividend Account within the next seven days.

• Dividend transferred to IEPF: Amounts remaining unclaimed in the Unpaid Dividend Account for seven years are transferred to IEPF, together with applicable accrued interest.

• Shares transferred to IEPF: Shares on which dividend has remained unpaid or unclaimed for seven consecutive years or more are subject to transfer under the applicable statutory provisions, including relevant exceptions.

The seven-year rule does not mean every old shareholding automatically moves to IEPF. The dividend history and company records must be checked.

3. How to trace physical shares when the certificate and folio are missing

The most difficult case is often one in which the original shareholder has died and the family has no certificate, folio number, PAN or company name.

There is no single public database that guarantees discovery of every historical physical shareholding. Use the following sequence.

Step 1: Search family records

Check old files, bank lockers, personal papers and records held by other family members. Look for:

• Physical share certificates, including damaged certificates and photocopies.

• Dividend warrants, dividend advice slips and old bank statements showing dividend credits.

• Income-tax returns, wealth-tax records, personal balance sheets and net-worth statements.

• Company letters, annual reports, AGM notices and investment correspondence.

• Old broker statements, demat statements and records of the deceased's spouse or joint holders.

One old dividend warrant may reveal the company name, folio number and shareholder particulars needed to begin the search.

Step 2: Record every available clue

From any surviving document, extract the shareholder's name, company name, folio number, certificate number, distinctive numbers, number of shares, face value and old registered address.

Do not discard a certificate because the company name looks unfamiliar. The issuer may have changed its name, merged or transferred its records to a successor entity.

Step 3: Search IEPFA's online facility

Start with the official IEPFA Portal Login and Search Facility.

The search facility provides three routes:

1. Search by PAN

2. Search by basic information, such as name and date of birth

3. Search by company name with Demat ID or folio number

For a deceased shareholder, try the available basic particulars and name variations where the search form allows them. If PAN or folio details are missing, do not stop at the first unsuccessful search.

A failed search is not conclusive. The investment may still be held by the company, may be recorded under different particulars, or may require a search of historical records.

Step 4: Ask the company or RTA to trace historical records

Once a possible issuer is identified, write to its investor-relations team or RTA. Supply every available clue, including the shareholder's name, former address, approximate investment period and any certificate or dividend reference.

Request written confirmation of:

• Whether a historical folio or shareholding exists.

• The number of shares and available certificate particulars.

• The unpaid-dividend history.

• Whether shares or dividends have been transferred to IEPF.

• Whether the company changed its name, merged or transferred records to a successor entity.

• The applicable procedure for establishing entitlement and pursuing recovery.

If the RTA insists on a folio number, explain that the family is trying to trace that very number. Ask whether a historical search can be conducted using the shareholder's name and former address.

Step 5: Trace a former company or successor entity

Use the name appearing on an old certificate, dividend warrant or letter to trace the issuer's corporate history. Check available company master data through the Ministry of Corporate Affairs and identify the successor company or current RTA, where applicable.

If the company is under liquidation or has been dissolved, investigate the relevant corporate or liquidation records to establish who holds the historical records and which recovery route remains available.

Step 6: If the family has no documents at all

Reconstruct the investor's history using bank records, tax records, former employers, business papers, broker correspondence and family information.

Ask relatives whether the investor regularly received dividends or maintained an investment relationship with a broker. Search IEPFA using the available particulars. If a possible issuer emerges, approach its RTA for a historical-record search.

Practical tip: Maintain a tracing register recording each name searched, company contacted, response received, folio identified and next action. This is particularly useful where several family members may have held shares in different companies.

4. The shareholder has died: a legal-heir certificate may provide a simpler route

Finding an investment and proving the right to recover it are separate steps. Families should not assume that a succession certificate or probate is invariably the only route.

The Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Second Amendment Rules, 2024, notified as G.S.R. 552(E) dated 9 September 2024, amended Schedule II to recognise a legal-heir certificate issued by a revenue authority not below the rank of Tahsildar having jurisdiction, as an alternative to the specified court or tribunal documentation in the applicable transmission process.

Where this route is used, the prescribed supporting documents include:

• A notarised indemnity bond from the claimant to whom the securities are to be transmitted.

• A no-objection certificate from the other legal heirs, confirming relinquishment of their rights to the transmission claim, with the attestation required under the applicable rules.

This can offer a practical alternative to obtaining a succession certificate or other court-issued documentation. The claimant should verify the applicable Schedule II requirements and the company's current document checklist before proceeding.

The correct route still depends on the registered holding, nomination, claimant's status and facts of the succession.

• Joint holding: Establish the registered holders and the procedure applicable after the death of one holder.

• Registered nominee: Obtain the death certificate and follow the applicable transmission and claim requirements.

• No nomination: Establish the appropriate legal-heir route and supporting evidence.

• Multiple heirs: Obtain prescribed no-objection documents or other evidence, where applicable.

• Disputed succession: Obtain appropriate legal advice before filing.

Being a child or spouse does not, by itself, establish entitlement to claim securities registered solely in another person's name.

Keep the two processes separate: transmission establishes who is entitled to the securities; the IEPF refund process deals with the shares or amounts transferred to the Fund. Complete the applicable transmission and verification requirements rather than treating the claim form as a substitute for succession documentation.

5. Lost certificates, mismatched names and other obstacles

Problem	Practical action
Original physical certificate is lost	Ask the company or RTA for the applicable lost-security procedure and prescribed supporting documents.
Name or signature does not match	Reconcile the original records with current identity documents and follow the prescribed correction or verification procedure.
Address has changed	Provide the required evidence and complete the applicable record-update procedure.
Old bank account is closed	Establish the bank particulars required for the claim and verify them before submission.
Dividends were never received	Obtain the company's dividend history and identify which amounts remain with the company and which have moved to IEPF.
Company cannot locate the folio	Supply historical clues and request a search of older records.
Company changed its name or merged	Trace the corporate history and identify the successor company or current RTA, where applicable.
Claim was rejected or returned	Identify the specific defect and follow the prescribed correction or resubmission process.
Claim remains pending	Track the SRN, contact the designated IEPF Nodal Officer and request written confirmation of the outstanding action.

What changed for lost physical securities?

The 2024 amendment also revised the documentary requirements for lost or misplaced securities, including omission of the earlier surety-affidavit item from Schedule III.

This does not mean that a lost certificate can simply be ignored. The claimant must still follow the applicable lost-security procedure and provide the evidence required for the particular case, including prescribed declarations, indemnities or other supporting documents.

6. Before filing Form IEPF-5, reconcile the entitlement

A frequent cause of delay is filing without reconciling the claim with the company's records.

Ask the company or RTA for an entitlement letter or written confirmation of the shares and amounts transferred to IEPF, where applicable. Reconcile:

• Company name and relevant corporate particulars.

• Shareholder name and folio or demat details.

• Number of shares transferred.

• Dividend amounts and relevant years.

• Whether the claim covers shares, amounts or both.

• The claimant's identity and basis of entitlement.

The substituted Form IEPF-5 took effect on 6 October 2025 under the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Amendment Rules, 2025, notified as G.S.R. 733(E) dated 1 October 2025.

The revised form includes a field relating to an entitlement letter issued by the company or bank and covers claims involving transmission. Check the live form and its instructions to establish what is required for the particular case.

7. Form IEPF-5: filing and document submission

Once the investment and claimant have been identified, follow the current official procedure.

Step 1 — Prepare the supporting documents. Depending on the case, these may include identity and PAN particulars, an entitlement letter where applicable, bank proof, a demat Client Master List, evidence of shareholding, prescribed indemnity and declaration documents, and death or succession documents where relevant.

Step 2 — File the current Form IEPF-5. Access the applicable filing facility through the Ministry of Corporate Affairs portal and follow the latest form instructions.

• IEPF Authority

• Ministry of Corporate Affairs

Step 3 — Upload documents and retain the acknowledgement. Legal heirs, successors, administrators and nominees must follow the applicable requirements for uploading self-attested scanned copies of the prescribed Schedule II documents with Form IEPF-5. Send physical documents in original or other prescribed form only where the current rules, company instructions or claim-specific procedure require them.

Retain the Service Request Number (SRN), acknowledgement and proof of any required dispatch.

Step 4 — Complete verification. The company verifies the claim and submits the prescribed verification report to the Authority. Respond promptly to any deficiency or resubmission request.

Step 5 — Track recovery to completion. Maintain a dated record of the SRN, documents submitted, communications and status. After approval, verify that the eligible amount has been credited or that the shares have been transferred, as applicable.

Filing Form IEPF-5 does not guarantee approval. Incomplete evidence, inconsistent particulars or unresolved entitlement issues can delay or prevent recovery.

8. If the company is not responding

Use a documented escalation process:

1. Write to the RTA with the folio or available historical particulars.

2. If unresolved, contact the company's IEPF Nodal Officer using the details published by the company.

3. Refer to the SRN, dates, documents submitted and precise outstanding issue in each follow-up.

4. If the matter remains unresolved, use the applicable official grievance or escalation mechanism.

Ask what remains outstanding, who must act and which document or correction is required. Avoid sending original documents unless the applicable instructions require them, and retain proof of dispatch.

9. Search across unclaimed financial assets—not just shares

Families may have forgotten bank deposits, insurance proceeds, mutual fund investments or other financial assets alongside old shares.

The Finance Ministry's Common Landing Portal for Unclaimed Financial Assets provides a single starting point for accessing search facilities across multiple categories:

Search Unclaimed Financial Assets

For bank deposits specifically, the Reserve Bank of India's UDGAM portal provides a search facility for unclaimed deposits maintained by participating banks:

RBI UDGAM Portal

These portals help locate possible assets; they do not replace the relevant institution's claim, identity-verification or succession procedure.

10. Create a recovery file for each shareholder

Maintain one file containing:

• Shareholder's name and available identity details.

• Company name, former name and RTA contact details.

• Folio number, certificate particulars or DP ID and Client ID.

• Old certificates, dividend warrants, statements and correspondence.

• Company confirmation and entitlement particulars.

• Claimant's identity, legal-entitlement and succession documents, where relevant.

• Form IEPF-5 acknowledgement and SRN.

• Supporting documents and proof of any required dispatch.

• Verification, deficiency and resubmission communications.

• Final proof of payment or share transfer.

This record is particularly important where the original shareholder has died or the family is tracing multiple investments.

A final practical caution: the IEPFA portal is expected to change

The Ministry of Corporate Affairs reported in August 2026 that the planned Integrated IEPFA Portal 2.0 rollout was scheduled for November 2026. Proposed features include a pre-filled Form IEPF-5 and an entitlement-search facility. These are planned features, not a guarantee that every feature will be live on a particular date. <Cite refs={["turn127118search0"]}/>

Before filing, check the official IEPFA and MCA websites for the live search facility, current form and latest instructions. Do not rely solely on screenshots or filing steps from an older version of the portal.

CA S.Ahuja perspective

Forgotten investments are often not lost through one major event. They become difficult to recover through a series of small gaps: a forgotten folio, a changed company name, a missing certificate, an outdated bank account or an unresolved succession issue.

The correct sequence is:

Trace the investment → confirm where it is held → reconcile the entitlement → establish who can claim → complete the applicable filing and verification → track recovery to completion.

For families, this is also an opportunity to review old physical certificates, demat statements, dividend records and succession documents before another generation loses track of the investment.

The objective is not merely to file Form IEPF-5. It is to establish the entitlement correctly and recover what is legally due.