NRI's CORNER
F.E.M.A.
Tax on long term capital gains -Reinvested.

NRIs CORNER'S - EXEMPTION OF LONG TERM CAPITAL GAINS FROM SHARES & SECURITIES UPON REINVESTMENT

1.    In case of an assessee being a non-resident Indian, any long-term capital gain arise from the transfer of a foreign exchange asset, and the assessee has, within a period of six months after the date of such transfer, invested in any specified asset, so much of the long-term capital gain will be exempt in proportion to investment, provided the new acquired asset is not transferred within a period of three years.
2.     (a) capital gain related to Foreign Exchange asset - In case of a share held in a company or any other security listed in recognized stock exchange in India or a unit of Unit Trust of India or a unit of Mutual Fund or a zero coupon bond held for more than 12 months or more and other specified assets held for 36 months or more.
(b) Long Term Capital Gains of an equity share in a company or a unit of an equity oriented fund, where such transaction is chargeable to securities transaction tax, are exempt from tax.
3.     NRIs are granted a special benefit by way of an option of being taxed at concessional tax rate of 10% as regards long term capital gainsarising from specified asset.
4.     The concessions are available to a Non Resident Indian i.e. a non-resident as defined under the Income Tax Act, 1961 being distinct from an NRI (person resident outside India) as defined under FEMA, 1999.
5.     Further, an NRI is given a choice, and if he so decides, then only provisions of said Chapter are applicable to him. As for the provisions, concerned NRI has to file a declaration together with return of income and then only provisions are applicable. Otherwise, an NRI is to be taxed at par with Residents in said matters.
6.       01   If the NRI so chooses and furthermore if he does not have any other income, then, for the income opted under these provisions, he is not required to furnish a return of income.
02   However, it is necessary that tax is deducted at source as regards the specified income. 
7.      Benefit of Concessional Tax to be available in certain cases even after the assessee becomes resident :
Where a non-resident Indian becomes assessable as resident in India in any previous year, he, may if he so opts, continued to be governed by the provisions of this chapter in respect of the investment income of all the foreign exchange assets except shares of an Indian company, until the transfer or conversion  into money of such assets.
8.      If the assessee elects to be governed by the provisions of this chapter the following shall be the consequences:
01   No deduction from Investment income.
No deduction in respect of any expenditure or allowance shall be allowed.
02   No deduction under Chapter VI-A and proviso 2 to section 48 not applicable:
If the Gross Total Income of the non-resident Indian consists only of investment income or income by way Long-term capital gains or both, no deduction shall be allowed to the assessee under Chapter VI-A (80C to 80U) and nothing contained in the provisions of the second proviso to section 48 regarding indexation of cost shall apply to income chargeable under the head "Capital gains". 
9.      Quantum of deduction can be calculated by using the following formulae:
 
 Long-term Capital Gain  X    Amount Invested
                           Net Consideration
EXAMPLE:-
1.
Purchase of 10,000 Debentures of R Industries Ltd  - an Indian Company at a price of Rs.532/- per debenture (Including brokerage) on January 01, 2005.
2.
Remittance US$ 1,10,000 to NR(E) account  for said purchase on January 01, 2005.
3.
Sold said debentures at a price of 1165/- per debenture on March 10, 2009.
4.
Purchase of Residential House for Rs.1,00,00,000/-.
 
Particular
 TT Buying rate
TT Selling rate 
 
(1 US $)
(1 US $)
 As on January 01, 2005.
42
44
 As on March 10, 2009.
50
52
 
 
 
 
---------------
--------------
 
 Rs.
US $ 
 
---------------
--------------
Sale consideration 
 
 
            Rs.1165 x 10000 (No. of Debentures)
1,16,50,000
-
            Rs.1165 x 10000 (No. of Debentures) / 51 (Average of TT Buying and Selling rate as on sale date)
-
2,28,431
Less:   
Cost of acquisition
            Rs.532 x 10000 (No. of Debentures)
            Rs.532 x 10000 (No. of Debentures) / 43 (Average of TT Buying and Selling rate as on purchase 
            date)
 
53,20,000
 
-
-
 
1,23,720
 
--------------
--------------
LONG TERM CAPITAL GAIN 
63,30,000
1,04,711
 
========
========
LONG TERM CAPITAL GAIN   (US$ 1,04,711 x Rs. 50) (TT Buying rate as on sale date)
-
Rs.52,35,550
 
 
 
 
========
========
Exemption
 
 
Long term capital gain as above
52,35,550
Less :- Exemption 
  1,00,00,000? X      52,35,550
                  1,16,50,000ƒ
 44,94,034
 
--------------
LONG TERM CAPITAL GAIN LIABLE TO TAX
7,41,516
 
========
Thus said net taxable gain of Rs. 7,41,516 is entire taxable as the basic tax exemption limit is not deductible in case of non-resents while computing the tax on the long term capital gains, and the entire gain is taxable at the flat rate of 10% as the gain arise out of the sale of specified asset.
 
?Amount Invested in purchase of Residential House.

 
Long Term Capital Gain upon sale of Debentures

 
ƒNet Consideration of sale of Debentures

 

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