created by
Rajesh Dhruva
Tax on long Term Capital Gain of Specified Assets
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.
.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 from the date of 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.
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 24 months and as "Short Term Capital Gains (STCG ) if held for lesser period.
8.Disadvantage NRIs :
.01 Non-Resident will be paying LTCG tax on gross amount of LTCG without benefit of basic exemption limit.
.02 And as such entire LTCG will be taxed at 20% subject to Indexation from the first Rupee gain.
.03 STCG will be taxed at normal tax rates as applicable to the slab of net taxable Income.