NRIs CORNER - LONG TERM CAPITAL GAIN FROM SPECIFIED ASSETS
NRIs are granted special benefit of confessional tax on Long Term Capital Gain arising on sale of specified assets which are shares of Indian Companies; debentures and deposits of Indian Public limited companies and Government securities.
1. Tax Exemption :
.01 Tax exemption can be claimed as regards Long Term Capital Gains [ LTCG ] arising from sale of specified assets which are purchased from forex remittance or balance in NRE or FCNR account if the sale proceeds are invested in another specified asset.
.02 Entire LTCG will be exempt from tax if the whole of sale proceeds are invested in another specified asset.
.03. If part of sale proceeds are invested in purchase of new specified asset , exemption will be granted on prorate basis.
2. Conditions :
.01 The seller should invest the sale proceeds into new specified asset in total for claiming total capital gains exemption.
.02 New specified asset is to be purchased within six months..
.03 Such new specified asset should be held for a period of three years or more.
3. Specified Assets :
.01 Shares of Indian Companies which would include private as also public limited companies,
.02 Debentures of Indian Public Company.
,03 Deposits of an Indian Public Company. [ Note : FEMA'99 prohibits an NRI to place deposits with an Indian Company. ]
.04 Government of India's securities.
4. Tax Rates :
.01 LTCG are taxed at 10% flat rate. [ Section 112 of the Income Tax Act ,1961]
.02 STCG of other assets are taxed at normal rates of applicable tax on total income.
.03 LTCG being taxed at flat rate basic threshold exemption limit is not deductible in case non-residents.
5. Contravention :
.01 If new specified asset is sold within a period of 3 years after the purchase LTCG exempted earlier will be taxed in the year of such sale.
6. Capital Gains - Computation :
.01 As the flat rate of tax of 10% is applicable tax computation is not necessary
.02 Indexed cost is not to be computed on account of flat rate of 10% tax rate.
.03 LTCG are arrived at by deducting such indexed cost from the sale price.
.04 In case of immovable properties, sale price is to be replaced by the valuation of the property determined by the State Registrar for stamp duty payable by the buyer if the same is higher.
7. Capital Gains - Meaning :
.01 Profits and gains earned upon sale of any immovable or movable assets are taxed under the head of "Capital Gains" under the Income Tax Act, 1961.
.02 Such gains 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.
8. Disadvantage NRIs :
.01 Non Resident are at a disadvantage as against residents as re: LTCG of all assets as the basic threshold exemption limit is not deductible in case non-residents.
.02 Thus a non-resident will be paying on gross amount of LTCG 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 from the 1st Rupee gain.