Capital Gains from Shares & Debentures. in case of non-resident


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 upto Rs. 1 lakh 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 or balanced schemes of mutual funds are defined as LTCG if the same are held for more than 12 months. Debt schemes of mutual funds are defined as LTCG if the same are held for more than 36 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 24 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 upto Rs. 1 lakh. Capital Gain exceeding Rs. 1 Lakh are chargeable to tax at 10%.

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   STCG of such other shares or mutual funds are taxed at normal rates of tax as applicable to the total taxable income .

.03   Such other STCG are also eligible for basic tax limit being the threshold limit of income tax exemption presently being INR 2,50,000.

.04    LTCG from securities listed in India shall be taxed at 10% if it exceeds Rs. 1 lakh. 

.05  LTCG from unlisted securities, from debt or other schemes of mutual funds shall be taxed at 20% subject to indexation. 

5.    Capital Gains - Computation :

.01   LTCG are arrived at by deducting actual cost from the sale price.

.02   Benefit of indexation is not available to NRIs.

.03  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 2,50,000.

.03  And as such entire LTCG will be taxed at 20% subject to indexation and STCG of listed shares or Mutual Funds Units will be taxed at 15% from the 1st Rupee gain.