NRIs CORNER - LONG / SHORT TERM CAPITAL GAIN ON SALE OF SHARES, DEBENTURES & SECURITIES
An income-tax exemption as regards Long Term Capital Gains [ LTCG ] earned from sale of listed shares traded on stock exchange as also equity mutual funds which are subjected to security transaction tax are exempt whereas other gains are taxed at various rates. Salient features of exemption and tax are :
1. Capital Gains - Meaning :
.01 Profits and gains earned upon sale of any shares , debentures, mutual funds and other securities as also other movable or immovable assets are taxed under the head of "Capital Gains" under the Income Tax Act, 1961 [ I.T.Act ].
.02 Gains of Shares of a Company or equity , debt or balanced schemes of mutual funds are defined as LTCG if the same are held for more than 12 months.
.03 Gains of said shares or mutual funds held for 12 months or less are classified as "Short Term Capital Gains (STCG)" and taxed at rate of 15%.
.04 Gains of other movable or immovable assets are classified as "Long Term Capital Gains (LTCG)" if the assets are held for a period of more than 36 months and as "Short Term Capital Gains (STCG ) if held for lesser period.
2. Tax Exemption :
.01 Long Term Capital Gains [ LTCG ] arising from sale of listed shares or equity schemes of Indian Mutual Funds which are subject to securities transaction tax [ STT ] are totally exempt from tax.
3. Conditions :
.01 The sale of listed shares or equity mutual funds should have been subjected to STT.
.02 Shares should have been sold on floor of stock exchange.
4. Tax Rates :
.01 Short Term Capital Gains [ STCG ] arising from sale of such shares or equity schemes subject to STT are subject to flat rate of tax of 15%.
.02 LTCG of other shares or debt or other schemes of mutual funds are to be taxed at 20% after indexation or flat rate of 10%.
.03 STCG of such other shares or mutual funds are taxed at normal rates of tax as applicable to the total taxable income .
.04 Such other STCG are also eligible for basic tax limit being the threshold limit of income tax exemption presently being INR 2,00,000.
.05 LTCG from securities listed in India , Units of Indian Mutual Funds and Zero Coupon Bonds shall be taxed at 20% after indexation or taxed at 10% without indexation.
5. Capital Gains - Computation :
.01 While calculating the LTCG , indexed cost will replace the actual cost.
.02 Indexed cost is computed increasing the purchase price by notified cost of living index for each year of holding.
.03 LTCG are arrived at by deducting such indexed cost from the sale price.
.04 In case of NRIs , Capital Gains of shares and debentures are calculated converting purchase and sale prices into same foreign currency as was initially utilised for purchase or initial credit in Non Resident bank account.
6. Disadvantage NRIs :
.01 Non Resident are at a disadvantage as against residents as re: LTCG of all assets or STCG of listed shares or Mutual Fund Units as the basic threshold exemption limit is not deductible while computing the tax on said capital gains in case of non-residents.
.02 Thus a non-resident will be paying tax on gross amount of said LTCG or STCG including the basic threshold exempt limit of INR 2,00,000.
.03 And as such entire LTCG will be taxed at 20% or 10% as the case may be and STCG of listed shares or Mutual Funds Units will be taxed at 15% from the 1st Rupee gain.