CAPITAL GAINS ON TRANSFER OF SECURITIES OF AN INDIAN COMPANY BY NON RESIDENTS

    

Capital gains on transfer of Shares/ Debentures of an Indian Company bought in foreign currency by Non Residents [Sec 48(1) read with Rule 115A]  

The Rules of determining that whether a security is a long term or a short term capital asset a period of one year has been specified by the Income Tax Law. However in case of NON RESIDENTS this rule does not apply because of which benefit of indexation cannot be claimed by them even if the security is a long term capital asset.

In this special situation the cost of acquisition of such securities shall be calculated in the following manner:  

Step

Description

I

Full Value of Consideration shall be converted into the same foreign currency, which was initially utilized in the purchase of such shares/ debenture, using average rate of TT buying and TT selling as on the date of sale.

II

Cost of Acquisition shall be converted into the foreign currency, which was initially utilized in the purchase of such shares/ debenture, using average rate of TT buying and TT selling as on the date of acquisition of such shares/ debentures.

III

Expenses of Transfer will also be converted into the same foreign currency, which was initially utilized fir acquisition of such shares/ debentures, using average rate of TT buying and TT selling as on the date of transfer.

IV

Computation of Capital Gains shall be done as under:  

Full value of Consideration as determined in Step I                        xxx

  Less:  Cost of Acquisition as determined in Step II                     xxx

  Less:  Expenses on transfer as determined in Step III                 xxx  

Capital Gains in Foreign Currency                                               xxx

V

Capital Gains calculated in foreign currency, as stated above may be treated as long term or short term and shall be converted into INR equivalent value at the TT buying rate only prevailing on the date of transfer of such capital asset.

**Telegraphic Transfer Buying Rate: is the rate at which the bank is willing to buy the foreign currency from the customers (for their TT and DD transactions)  

** Telegraphic Transfer Selling Rate: is the rate at which the bank is willing to sell the foreign currency to the customers (for their TT and DD transactions)  

PLEASE NOTE:  

  • The Transferor’s residential status should be assessed as ‘Non Resident’ at the time of transfer.

  • Non Resident also includes a Foreign Company.

  • This provision is not applicable to units of UTI and Mutual Funds.

  • The aforesaid manner of computing capital gains shall be applicable in case of capital gains arising in case of every re-investment thereafter in shares/ debentures on an Indian company.

  •  Indian company here includes all listed/ non listed companies including a Govt. company.

  • Bonds of Central/ State Govt. and RBI are not covered under this provision.