NRI Capital Gain Tax (Long Short Term) TDS Property Sale

Capital Gain Taxation For Non Residents (NRI) including certain crucial issues like Capital Gain on sale or Inherited Property or Shares by Non Resident, Indexation Benefit: The Following article is a detailed explanation of Capital Gain Taxation For Non Residents. Any person including a foreign company or other non-resident person is liable to capital gains tax in India, if there is a transfer of a property (capital asset) in India which results in profit or gain. Rate of exchange for conversion of rupees into foreign currency and reconversion of foreign currency into rupees for the purpose of computation of capital gains under the first proviso to section 48 (Rule 115A).

First Proviso to Section 48 read with rule 115A

The first proviso to the said section provides that in case of a non-resident, capital gains arising from transfer of a capital asset being shares in or debentures of an Indian company shall be computed by converting the cost of acquisition, the expenditure incurred wholly and exclusively in connection with such transfer and the full value of consideration received or accruing as a result of the transfer of the capital asset into the same foreign currency as was initially utilized in the purchase of the shares or debentures. Thereafter, the capital gains so computed in such foreign currency shall be re-converted into Indian currency.

Rule 115A of the Income-tax Rules, 1962 provides for the following rate of exchange for conversion of rupees into foreign currency and reconversion of foreign currency into rupees for the purpose of computation of capital gains under the first proviso to section 48:

  • for converting the cost of acquisition of capital asset, the average of the telegraphic transfer buying rate and telegraphic transfer selling rate of the foreign currency initially utilized in the purchase of the said asset, as on the date of its acquisition.
  • for converting expenditure incurred wholly and exclusively in connection with transfer of
    capital asset referred to in clause (a), the average of the telegraphic transfer buying rate
    and telegraphic transfer selling rate or the foreign currency initially utilized in the purchase of the said asset, as on the date of transfer of capital asset;
  • for converting the full value of consideration received or accruing as a result of transfer of capital asset referred to in clause (a), the average of the telegraphic transfer buying rate and telegraphic transfer selling rate of the foreign currency initially utilized in the purchase of the said asset, as on the date of transfer of capital asset;
  • for reconverting capital gains computed in the foreign currency initially utilized in the purchase of the capital asset into rupees, the telegraphic transfer buying rate or such currency, as on the date of transfer of the capital asset.

Meaning of certain terms

Telegraphic transfer buying rate: The rate or rates of exchange adopted by the State Bank of India for buying foreign currency having regard to the guidelines specified from time to time by the RBI for buying foreign currency where such currency, made available to that bank through a telegraphic transfer.

Capital Gain Taxation For Non Residents including certain crucial issues like Capital Gain on sale or Inherited Property or Shares by Non Resident, Indexation Benefit

Telegraphic transfer selling rate: The rate of exchange adopted by the State Bank of India for selling foreign currency where such currency is made available by that bank through telegraphic transfer.

Other Important Points

  1. It is also provided that the aforesaid manner of computation of capital gains shall be applicable in respect of capital gains accruing or arising from every re-investment thereafter in and sale of shares in or debentures of an Indian company.
  2. However, if the total income of an assessee includes any income chargeable under the head ‘capital gains’ arising from transfer of a capital asset being an equity share in a company or unit of an equity oriented fund or unit of a business trust and transaction of sale of such security has been entered on or after October 1, 2004 on which Securities Transaction Tax is chargeable, then, short term capital gains shall be payable at the rates specified and no longterm capital gains shall be payable on such securities.
  3. Further, section 50C provides that the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed shall, for the purpose of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer.
  4. The shares and debentures (whether listed or non-listed) of Indian companies only are
    covered under this proviso. Indian company shall include Government company. However, bonds of Central Government / State Government and RBI are not covered for this purpose.

Conclusion:

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