Capital Gains Tax for NRIs

NRIs who have purchased/inherited assets in India and wish to sell them are unaware of the various and complicated tax provisions related to selling assets in India. They do not know how much tax will be charged or whether they can adjust the gains/profit with the basic exemption limit. The tax provisions for non-residents is not same as it is for residents. If the NRI wants to sell his/her asset in India then he must know the following things.

When an individual (resident or non-resident) sells an asset in India a capital gain/loss is liable to happen. If the individual sells his/her asset at a capital gain then he is liable to pay a capital gains tax. Capital gain may be short term or long term depending on the period of holding and the type of asset.

Long-term capital asset

Any capital asset held by the individual for a period of more than 36 months immediately preceding the date of its transfer will be treated as a long-term capital asset. However, in respect of certain assets like shares (equity or preference) which are listed in a recognized stock exchange in, units of equity oriented mutual funds, listed securities like debentures and Government securities, Units of UTI and Zero Coupon Bonds, the period of holding to be considered to be 12 months instead of 36 months. In case house property and unlisted shares of a company, it is 24 months instead of 36 months.

Gain arising on transfer of a long-term capital asset is termed as Long-Term Capital Gain.

Long-term capital gains arising on account of sale of equity shares in India listed on a recognized stock exchange is exempt under section 10(38) for residents as well as for NRIs.

LTCG on sale of debt, gold, real estate or assets not covered under section 10(38) are taxed at 20% (plus surcharge and cess as applicable), but in certain special cases, the gain may be (at the option of the taxpayer) charged to tax @ 10% (plus surcharge and cess as applicable). The benefit of charging long-term capital gain @ 10% is available only in respect of long-term capital gains arising on transfer of any of the following asset:

• Any security which is listed on a recognized stock exchange in India
• Any unit of UTI or mutual fund (whether listed or not)
• Zero coupon bonds.

Long-term capital gains are calculated as the difference between sale value and indexed cost of purchase. Indexed cost of purchase is nothing but the cost of purchase adjusted to inflation.

A non-resident individual cannot adjust the exemption limit against Long Term Capital Gain.

Mr Kapoor (age 67 years and non-resident) is a retired person. He purchased a piece of land (at Delhi) in December 2010 and sold the same in April 2016. Taxable long-term capital gain on such sale amounted to Rs. 1,84,000. Apart from gain on sale of land, he is not having any other income. What will be his tax liability?

For a non-resident individual of any age, the basic exemption limit is Rs. 2,50,000. Further, a non-resident individual cannot adjust the basic exemption limit against LTCG. Hence, in this case, the exemption limit of Rs. 2,50,000 cannot be adjusted against LTCG. In other words, Mr Kapoor cannot adjust the LTCG on sale of land against the basic exemption limit. Thus, LTCG of Rs. 1,84,000 will be charged to tax @ 20% (plus cess @2% and 1%). Thus, the tax liability will come to Rs. 37,904.

Short-Term Capital Asset

Any capital asset held by the taxpayer for a period of not more than 36 months immediately preceding the date of its transfer will be treated as a short-term capital asset. However, in respect of certain assets like shares (equity or preference) which are listed in a recognized stock exchange in India, units of equity oriented mutual funds, listed securities like debentures and Government securities, Units of UTI and Zero Coupon Bonds, the period of holding to be considered is 12 months instead of 36 months. If unlisted shares of the company is not held for a period of 24 months then it will be a short-term capital asset and the same applies to house property.

Gain arising on transfer of Short-Term capital asset is termed as Short-Term Capital Gain

Short-Term Capital Gains (STCG) arising on account of sale of equity shares listed in a recognized stock exchange, units of the equity oriented mutual fund and units of a business trust is covered under section 111A. Such gain is charged to tax at15% (plus surcharge and cess as applicable).

STCG not covered under section 111A i.e. STCG arising out of sale of debt, gold, real estate will be taxed as per the NRIs tax slab.

Short-term capital gains are calculated as the difference between sale value and cost of purchase.

An NRI cannot adjust the basic exemption limit against STCG covered under section 111A, whereas adjustment can be made for STCG not covered under section 111A.

Example:

Mr Gagan (age 59 years and non-resident) is a retired person earning a monthly pension of Rs. 5,000 from Indian employer. He purchased shares of SBI Ltd. in December 2016 and sold the same in March 2017 (sold in Bombay Stock Exchange and STT was levied). Taxable STCG amounted to Rs. 2,20,000. Apart from pension income and gain on sale of shares he is not having any other income. What will be his tax liability?

For non-resident individual irrespective of the age, the basic exemption limit is Rs. 2,50,000. Further, a non-resident individual cannot adjust the basic exemption limit against STCG covered under section 111A. In other words, Mr Gagan can adjust the pension income against the basic exemption limit but the remaining exemption limit cannot be adjusted against STCG on the sale of shares. The basic exemption limit, in this case, is Rs. 2,50,000, and the same will be adjusted against pension income of Rs. 60,000. The balance limit of Rs. 1,90,000 (i.e., Rs. 2,50,000 less Rs. 60,000) cannot be adjusted against STCG covered under section 111A.

Hence, in this case, Mr Gagan has to pay tax @ 15% (plus cess @ 2% and 1%) on STCG of Rs. 2,20,000.

Deductions under section 80C to 80U and STCG

No deduction is allowed on short-term capital gains referred to in section 111A. However, such deductions can be claimed from STCG not covered under section 111A.

Tax Deductible at Source          

• TDS is 15% for STCG in case of selling of listed equity shares or units of equity oriented mutual funds.
• There is no TDS in case of LTCG for selling listed equity shares and units of equity oriented mutual funds.
• TDS for short-term capital gains for sale of units of debt mutual funds, property, gold etc.(capital assets other than listed equity shares and units of equity oriented mutual funds will be 30%.
• TDS for long-term capital gains for sale of units of debt mutual funds, property, gold etc.(capital assets other than listed equity shares and units of equity oriented mutual funds will be 20%.