Non-Residents: |
| Under
the Income-Tax Act, a person is non-resident in India in any
previous year, if he satisfies any of the following conditions: |
|
| (a)
If he was in India for less than 365 during the four preceding years
and for less than 182 days during the previous year; or |
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| (b)
if he was in India for 365 days or more during the four preceding
years and for less han 60 days during the previous year. |
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| Note
: |
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| The
period of 60 days referred to in condition (b) above, shall be
substituted by 182 days, in case of an Indian citizen who leaves
India in any previous year as a member of crew of an Indian ship or
for the purpose of employment outside India, and in case of an
Indian citizen or a person of Indian origin who is outside India and
who comes on a visit to India in any previous year. |
|
| The
residential status of a person is to be determined for every
previous year. A person may be resident in a previous year and
non-resident in the following year, or vice versa. |
Non-Resident
Indian (NRI) |
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| An
individual who is a citizen of India or a person of Indian origin,
and a 'non-resident' (according to the above definition), is called
a 'non-resident Indian (NRI) |
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| Incidence
of tax in case of Non-Resident Person: |
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| Non-residents
(including NRI's) are liable to tax only in respect of income which
is received or is deemed to be received in India or accrues or
arises or is deemed to accrue or arise in India during the previous
year. |
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| Thus,
any income received / accrued outside India will not be taxable in
India in respect of non-residents. |
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| Remittance
or Transmission of Money to India is not an Income Received in India |
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| It
is significant to note that income received in first instance
outside India and subsequently remitted or otherwise transferred to
India is not to be treated as 'income received in India'. |
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| Income-tax
Liability of a Non-resident |
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| A
non-resident Indian having (Indian) income of more than Rs. 50,000,
except income from certain specified assets, is liable to pay
income-tax at the same rates as are applicable in case of resident
assessees. |
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|
| Any
income from 'long-term capital gains' arising to a non-resident is
taxable at the rate of 20%. |
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| The
balance of total income (other than long-term capital gains) is
taxable at the normal
rates of income-tax for various categories
of assessees. See annexure 16.1 |
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| Computation
of Capital Gains arising to Non-residents: |
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| In the present
scheme of the Income-tax Act, three sets of provisions exist for
computation and taxation of capital gains (and certain other incomes
too) arising to non-residents. These are- |
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| (i)
General Provisions (Sections 48 and 112) wherein the procedure for
computation of capital gains on transfer of shares/debentures is
different from that on other assets |
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| (ii)
special Rate of Tax on Income and Capital gains from Euro Issues/
GDRs. (Sec. 115A and 115AC). |
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| (iii)
Special Provisions for Taxation of NRIs having income from-tax Act.) |
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| We Shall now
discuss each of these provisions (insofar as they relate to capital
gains). |
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| (i)
General Provisions (Sections 48 and 122) |
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| Computation
of Capital Gains on transfer of Shares/Debentures |
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Capital gains arising
from the transfer of a capital asset being shares in, or debentures
of, an Indian company shall be computed by converting the cost of
acquisition, expenditure incurred wholly and wholly and exclusively
in connection with such transfer and the full value of the
consideration received or accruing as a result of the transfer of
the shares or debentures, into the same foreign currency as was
initially utilised in the purchase of the shares or debentures, into
the same foreign currency as was initially utilised in the purchase
of the shares debentures, and the capital gains so computed in such
foreign currency shall be reconverted into Indian currency.
Moreover, 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. [Sec. 48,
First Provision |
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| This
provision intends to protect non-residents from fluctuation of rupee
value against foreign currency, in order that he pays tax only on
the actual capital gains in foreign currency and not on the gains
computed in rupees. |
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| However,
in such cases the benefit of indexation will not be available for
the cost of acquisition. |
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| The
provision has been extended w.e.f. A.Y. 1993-94 to all non-resident
assessees. (Upto A.Y. 1992-93, this benefit was available to
non-resident Indians only). |
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| For
the purposes of this provision 'foreign currency' and 'Indian
currency' shall have the same meanings as assigned to them under the
FERA. Thus, 'foreign currency' means any currency other
than Indian currency and 'Indian currency' means currency which is
expressed or drawn in Indian rupees but does not include special
bank notes and special one rupee notes issued under section 28A of
the Reserve Bank of India Act, 1934. |
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| The
conversion of Indian currency into foreign currency : |
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| The
conversion of Indian currency into foreign currency and the
reconversion of foreign currency into Indian currency shall be at
the rates of exchange prescribed in this behalf by the CBDT, viz.
- |
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| (a)
the cost of acquisition of the capital asset shall be converted at
the average of the telegraphic transfer (T.T.) buying rate and
T.T. selling rate of the foreign currency
initially utilised in the purchase of the said asset as on the date
of its acquisition. |
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(b) the
transfer expenses and the full value of consideration shall be
converted at average of the T.T.buying rate and T.T. selling
rate of the foreign currency initially utilised in the purchase of
the said asset, as on the date of transfer of the capital asset. |
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| (c)capital
gains computed in the foreign currency, shall be converted into
rupees, at the T.T. buying rate of such foreign currency, as
on the date of transfer. |
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| Computation
of Capital Gains on transfer of other Capital Assets |
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Capital gains arising
from the transfer of capital assets other than shares in, or
debentures of, an Indian company, shall be computed in the usual
manner, by deducting cost of improvement and expenditure
incurred in relation to such transfer from the total sale
consideration. However, for computing capital gains on
transfer of 'long-term capital assets'. 'Indexed Cost
Acquisition' and 'Indexed Cost of Improvement' shall be considered. |
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| Rates
of Taxes on Capital Gains: |
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| FOR
LONG-TERM CAPITAL GAINS |
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| Income
arising from 'Short-term Capital Gains' is included in the gross
total income of the gross total income of the assessee and after
allowing deductions under Chapter VI-A, the total income is subject
to tax at the normal rates in force for that assessment year.
(See Annexure16.1). Rebate under Section 88 is available from
the tax computed on the total income in respect of deposits/payments
made in the approved schemes and instruments. |
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| FOR
LONG-TERM CAPITAL GAINS |
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| As
per section 112 long-term capital gains are subject to a flat rate
of income-tax @20%. |
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| However,
in case of long-term capital gains arising on transfer of listed
securities (except shares and debentures) or units of UTI or mutual
funds, the amount of tax shall be restricted to 10% of the capital
gain computed without giving the benefit of indexation. |
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| Deductions
under Chapter VI-A and rebate under Section 88 will not be available
in respect of long-term capital gains and the tax payable
thereon. Income other than long-term capital gains will
be subject to tax at the normal rates in force. |
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| In
the case of an individual or a Hindu undivided family the basic
exemption limit of Rs. 50,000 shall first be allowed against total
income as shall be allowed against such long-term capital gains.
For details refer chapter 'Computation of Capital Gains and Tax
liability'. |
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| For
examples on computation of capital gains refer para 'Computation
long-Term Capital Gains Relating to a Foreign Exchange Asset in the
Non-resident Indians (NRIs). |
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| (ii) Special Rate of Tax on Income and Capital Gains from Euro Issues/GDRs
[Secs. 115A and 115AC ] |
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| With
a view to increasing the inflow of foreign exchange into India, the
Government has permitted issue of convertible bonds and equity
shares abroad, by established Indian companies. The
bonds/shares shall be denominated in foreign currency and shall be
subject to a special treatment under the Income-tax Act.Besides,
non-residents have now been placed at par with foreign companies, in
respect of taxation of dividends, interest on foreign currency debts
and income from units of notified mutual funds. |
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| The
special provisions are applicable to all non-residents in respect of
their income by way of : |
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| (a)
dividends [which have not been subjected to additional incometax in
the hands of company u/s 115-O] [other than those mentioned in
clause (d) below]; |
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| (b)
interest received from Government or an Indian concern on foreign
currency debts; |
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| (c)
income received in respect of units, purchased in foreign currency,
of a mutual fund notified u/s 10(23D) or of the Unit Trust of
India |
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| (d)
interest or dividends [which have not been subjected to additional
Income-tax in the hands of company u/s 115-O] in respect of
specified bonds or shares (see below) or inrespect of bonds or
shares of a public sector company sold by the Govt. to the
non-residents in foreign currency; or |
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| (e)
long-term capital gains arising on transfer of the bonds/shares
aforesaid. |
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| Specified
bonds or shares : |
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| The
provision shall apply to the bonds or shares issued by an Indian
company in accordance with the specified scheme [i.e. Foreign
Currency Convertible Bonds and Ordinary Shares (through Depository
Receipt Mechanism) Scheme, 1993] of the Central Government and
purchased by a non-resident assessee in foreign currency.
These are popularly known as Euro Issues/GDRs. |
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| This
provision is also applicable in case of shares or bonds in an
amalgamated or resulting company, acquired in accordance with the
above scheme. [Sec. 115AC} |
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| Transfer
of bonds or shares to another non-resident : |
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| A
transfer of the specified bonds or shares, made outside India to
another non-resident, shall not be regarded as a transfer [vide
section 47 (viia)]. Thus. no tax shall be payable on capital
gains arising from such transfer. |
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| No
deductions to be allowed : |
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| While
computing the aforesaid incomes (whether by way of interest or
dividends or long-term capital gains), the following points must be
considered : |
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| (1)
In computing the interest or dividend income no deduction in respect
of any expenditure shall be allowed under sections 28 to 44C or
under section 57 of the Act; |
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| (2)
In computing the long-term capital gains, the protection against
exchange rate fluctuation and against inflation available under the
first and second provisos to section 48, shall not be allowed; |
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| (3)
No deduction under Chapter VI-A shall be allowed where the
gross total income consists only of the incomes as aforesaid.
In other cases, the deduction under Chapter VI-A shall be allowed
from the gross total income as reduced by such incomes, as if such
reduced amount was the gross total income as reduced by such
incomes, as if such reduced amount was the gross total income of the
assessee. |
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| (4)
The unabsorbed capital losses brought forward from earlier years
shall be allowed to be set off against ' long-term capital
gains' from specified bonds/shares. |
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| Tax
Payable : |
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| In
case of a non-resident, the income-tax payable shall be the
aggregate of- |
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| (i)
20% of the income specified in clauses (a), (b) and (c) above; |
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| (ii)
10% of the interest or dividend income in respect of specified bonds
or shares mentioned in clause (d) above |
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| (iii)
10% of the long-term capital gains arising from the transfer of the
afordable shares mentioned in clause (e) above; and |
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| (iv)
income-tax chargeable on the total income as reduced by the amount
of incomes referred to in clauses (a) to (e) above, at the
normal rates. |
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| Return
of Income : |
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| A
non-resident is not required to furnish his return income u/s 139
(1) if- |
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| (a)
his total income for the previous year consists only of incomes
specified in clauses(a) to (e) above;and |
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| (b) the
tax has been deducted at source on such income in accordance with
the relevant provisions. [Sec. 115A(5) and 115AC(4)] |
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| Sections
115A and 115AC are Mandaroty for Non-residents (Other than NRI's)] |
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| The
provisions of sections 115A and 115AC (for taxation of dividends,
interest on foreign currency debts, income received in respect of
units of a mutual fund, income from bonds or shares purchased in
foreign currency or capital gains arising from their transfer)
are mandatory for non-residents (other than non-resident Indians).
Non-resident Indians, however, have an option of being assessed
either under the special provisions of Chapter XII-A or under the
provisions of sections 115A and 115AC. In their case, the
provisions of sections 48 and 112 shall apply only where sections
115A and/or 115AC are not applicable and option to be assessed under
Chapter XII-A is not exercised. |
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| (iii) Special Provisions for Taxation of NRIs
having Income from Foreign Exchange Assets (Chapter XII-A of Income
-tax Act) |
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| Applicability |
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| The
special provisions of taxation contained in Chapter XII-A are
applicable to a non-resident Indian' who is an individual, being a
citizen of India or a person of Indian origin, not resident in
India, having 'investment income' or 'long-term capital gains' or
both from a 'foreign exchange asset' [Sec. 115C(e)] |
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| 'Investment
Income' means income derived from a foreign exchange asset [but
excludes dividends subjected to additional income-tax in the hands
of the company u/s 115-O.] 'Capital gains' means a capital gain from
long-term foreign exchange asset. 'Foreign exchange asset'
means any specified asset acquired or purchased with or subscribed
to in 'convertible foreign exchange' (as defined under FERA, 1973).
the specified assets are: (i) shares in an Indian company.
(ii) debentures issued bay public limited Indian company. (iii)
deposits with a public limited Indian company, (iv) securities of
the Central Government, and (v) any other assets which the Central
Government may notify in the Official Gazette in this behalf (NSC VI
and VII issues had been notified under this provision; both of these
issues have since been discontinued). |
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| Income
on shares in Indian companies, allotted in consideration for the
machinery and plant delivered abroad, will attract liability to tax
w.e.f. 1.5.1984. |
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| This
method is evidently intended to benefit the NRIs. In order
that the benefit may be availed of. the investor has to be a
non-resident Indian. as defined under the Income-tax Act. 1961 and
not under the FERA. 1973. |
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| Deductions
Not Allowable: |
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| (a)
In computing the investment income (i.e. interest or dividend income
derived from a foreign exchange asset), no deduction in
respect of any expenditure or allowance shall be allowed under
any provisions of this Act. |
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| (b)
In computing the long-term capital gains (arising on transfer of a
foreign exchange asset) the benefit of 'indexation'
available under second proviso to section 48 shall not be available
on such long-term capital gains. |
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| However,
in case of shares/debentures of an Indian company the protection
against exchange rate fluctuation (contemplated vide section 48
first proviso) shall continue to be available. For
'computation of capital gains on transfer of shares/debentures'
refer to 'General Provisions (sections 48 and 112)' above |
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| (c)
Where the gross total income consists only of investment income or
long-term capital gains (in respect of foreign exchange
assets) or both, no deduction under Chapter VI-A shall be allowed. In
other cases, the gross total income shall be reduced by such incomes
and the deductions under Chapter VI-A shall be allowed against the
gross total income so reduced [Sec. 115D] |
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| Exemption
from Capital Gains: |
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| No
capital gain tax is attracted on long-term capital gains arising
from transfer of foreign exchange asset if the net consideration for
the transfer is invested within six months in any specified asset or
deposited in notified savings certificates. If investment in
aforesaid specified assets is less than the net consideration, the
exemption will be allowed on proportionate basis. In case
where the new (specified) asset is transferred or converted into
money within a period of three years from the date of its
acquisition, the amount of capital gain exempted earlier will be
regarded as long-term capital gains of the year in which the new
asset is transferred o converted into money. |
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| The
'new assets' in which the net consideration should be invested, are
specified below : (vide Section 115E) |
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| -Shares
in an Indian company |
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| - Debentures issued by an Indian company which is not a
private company |
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| - Deposits with an Indian company which is not a private
company. |
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| - Any security issued by the Central Government. |
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| - Any savings certificates notified by the Central Government.
[The national Savings Certificates (VI and VII Issues) have been
notified for this purpose vide Notification No. SO 653(E), dated
8.9.1982 but the same have been discontinued]. |
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| - Any other asset that the Central Government may notify for
this purpose [No such asset has been notified so far ]. |
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| Prior
to 1.4.1989, deposit in the Non-resident (External) Account was also
included as one of the 'new assets',but this has since been
withdrawn. From the assessment year 1989-90 onwards, deposit of
consideration in this Account will not entitle the assessee to the
exemption. |
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| The
expression 'net consideration' means the full value of the
consideration received or accruing as a result of the transfer, as
reduced by any expenditure incurred wholly and exclusively in
connection with such transfer. No other deduction will be
allowed in determining the net consideration. Since the
transferred asset is a movable asset [shares or debentures], the
only conceivable expenditure that can be deducted will be brokerage
or commission paid, or stamp duty paid for the transfer. |
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| Quantum
of Exemption |
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| Where
the entire net consideration is reinvested in a new asset, the
entire capital gain is exempt from tax. Where only a portion
of the net consideration is reinvested. then the exemption
from tax is allowed on proportionate basis. |
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| Arithmetically
speaking. |
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Amount
of
Cost of new 'specified asset' x Capital Gain
Exemption =----------------------------------------------------- |
|
Net consideration for transfer of 'foreign exchange asset'. |
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| Simultaneous
Exemption u/s 54E |
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| For
transfers of foreign exchange assets effected before 1.4.1992,
simultaneous exemption u/s 54E (along with exemption u/s 115F) would
be available provided the conditions laid down in the respective
provisions were satisfied. |
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| From
A.Y. 1993-94, however, exemption u/s 54E is not available. |
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| Rate
of Tax |
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| The
investment income and long-term capital gains from [capital assets
other than foreign exchange assets are chargeable to tax at
flat rate of 20%. |
|
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| W.e.f.
A.Y. 1998-99 income by way of long-term capital gains from foreign
exchange assets are chargeable to tax at the rate of 10%. For
A.Y. 1997-98. the rate of tax was 20%. |
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| Option
not to be assessed under this special provision |
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| Income
from foreign exchange assets and long-term capital gains arising
from such specified assets, would be treated as a separate block and
charged at the rates mentioned above. The other incomes of
non-resident in India will be treated as separate block and charged
to tax in accordance with the other provisions of the Income-tax
Act. The non-resident has option to be assessed or not to be
assessed under special provision. The option will be made by a
declaration at the time of filing Income-tax Return. [Sec.
115-I] |
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| Non-resident
when becomes Resident in India: |
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| If
a non-resident Indian becomes resident in India in the subsequent
years, the special provisions of Chapter XII-A will continue to
apply in relation to the investment income derived from specified
assets except shares in an Indian company, until the transfer or
conversion (other than by transfer) into money of such assets. [Sec.
115H] |
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| Return
of Income |
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| A
non-resident Indian is not required to furnish his return of income,
if - |
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| (a)
his total income for that previous year consists only of investment
income or income by way of long-term capital gains (from
foreign exchange assets) or both ; |
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| (b) the tax has been deducted at source on such income; and |
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| (c) the assessee opts to be assessed under the special
provisions of Chapter XII-A. [Sec. 115G] |
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| Other
Concessions available to Foreign Companies and Offshore Funds: |
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| (a) Transfer of shares held in an Indian Company, in a scheme of
amalgamation of foreign companies :Capital gains arising from
transfer of any shares, held in an Indian company, by the
amalgamating foreign company to the amalgamated company, shall not
be chargeable to tax, if - |
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| (b)
Tax on income from units purchased in foreign currency or capital
gains arising from their transfer to an Offshore Fund :
Section 115A provides for a special rate of tax in case of any
income from units purchased in foreign currency on long-term capital
gains arising from their transfer, to an overseas financial
corporation (offshore fund). |
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| Deduction
of tax at Source on Long-term Capital Gain on Sale of Shares or
Debentures of other specified Assets by Non-resident Individuals of
Indian Nationality / Origin |
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| Section
195 read with Section 204 of the Income-Tax Act requires authorised
dealers to deduct income tax at source at a flat rate of 20% on
long-term capital gains accruing to an NRI on the transfer of
specified assets before remitting to him the balance sale proceeds
or crediting such proceeds to his NR(E) / FCNR Account. For
this purpose the production of No Objection or Tax Clearance
Certificate from the Indian Income Tax authorities has been
dispenses with and the authorised dealers have been issued the
following guidelines before remitting such sums. |
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| (1)
The seller of shares is an NRI as defined in Chapter XII_A of the
Income-tax Act. |
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| (2)
The shares/debentures / securities (i.e. the assets
specified in Chapter XII-A of the Income-tax Act)
where acquired by or on behal of the non-resident investor with
repatriation benefits, in accordance with the special or general
permission of Reserve Bank, out of remittance from abroad in foreign
exchange or from the foreign origin funds held in the investor's
Non-resident (External) / FCNR account, and such assets
are sold with the Reserve Bank's specific or general permission or,
in case of shares acquired under Portfolio Investment Scheme and
sold through stock exchange,the sale / transfer of sahres is
effected in accordance with Notification No. F. 10 /21 / 86-NRI
Cell, dated 10th June,1986 issued by Government of India under
Section19(6) of the Foreign Exchange RegulationAct, 1973.
Where the sale of shares /debentures acquired by the on-resident
investor directly from the companies concerned is made on
repatriation basis with the specific
permission of Reserve Bank and the Bank's approval letter is
produced, it will not be necessary for authorised
dealers to verify that these assets were acquired by the seller by
remittance in foreign exchange or out of foreign exchange funds. |
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| (3)
The bonus shares will be treated as foreign excahnge assets if the
shares on the basis of which the bonus
shares have been issued are "foreign exchange assets"as
defined in Chapter XII-A of Income-tax Act. |
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| (4)
If the rights shares are purchased or subscribed to in convertible
"foreign exchange assets" and,therefore, the
long-term capital gains arising on the sale of this right will not
be covered under the provisions of Chapter XII-A of the
Income-tax Act. |
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| (5)
The non-resident investor has submitted a declaration by a letter to
the authorised dealer to the effect that the asset sold by him
was his bona fide long-term capital asset and not
stock-in-trade. |
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| (6)
The specified capital asset sold by the non-resident Indian was held
by him for a period of more than 36 months
from the date of acquisition. For this purpose, the date of
acquisition and sale may be determined in the following
manner: |
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| (a)
In case the shares / debentures / securities were acquired by the
NRI directly from the concernedcompany / Government, the
date of acquisition will be the date ofissue as indicated in the
realtive certificate. |
| |
| (b)
In case the assets (shares / debentures / securities) were purchased
by the NRI through stoc exchange, the date of
acquisition of the asset by the NRI (i.e. the date from which
the capital asset has been "held" by him) will be the date
when the asset together with the transfer document
completed in all respect is handed overto the NRI or his agent. |
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| (c)
The date of 'transfer' of the capital asset, being a foreign
exchange asset will be the date of which the asset
together with transfer documents complete in all respects is
handed over to the buyer or his agent. |
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| Note : |
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| The
date of acquisition / transfer in case covered by item (b) or (c)
above., will have to be verified by the authorised dealer by
examining the relevant facts. For this purpose, besides the
declaration given by NRI seller / his agent / broker regarding the
date of acquisition / transfer, the authorised dealer may see
whether the payment for the asset was made near about the claimed
date. If ther is a considerable time-lag between the
claimed date of acquistion / transfer and the date of payment, the
case will require further examination. Thus, if the date of
acquisition is very much earlier than the date of payment or the
date of transfer is long ater the date when payment is received, the
authorised dealer will have to examine the matter further and act
accordingly. |
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| A
non-resident entitled to recieve any sum on which tax is required to
be deducted at source (as stated above), may make an application in
Form 15C (for banking companies) or Form 15D (for other
non-residents), to the Assessing Officer for the grant of a
certificate authorising him to receive such sum without deduction of
tax at source. The Assessing Officer shall grant a certificate
in Form 15#. The person responsible for paying such sum to the
non-resident shall make such payment without deducting tax, so long
as the certificate is in force. |
| |
| The
authorised dealers are also required to send within 14 days of the
date of deduction of tax, a statement in form No. 27 to the
Income-tax Officer having jurisdiction to assess the authorised
dealer concerned. A statement showing the computation of
capital gains in each case, should also be sent to the Income-tax
Officer ahving jurisdiction over the authorised dealer, along with
Form No. 27. |
| |
| Failure
to deduct tax at source attracts a penalty u / s 271C for a sum
equal to the amount of tax not so deducted. BEsides,
interest shall be chargeable on the tax deductible, till the date it
is actually paid u / s 201. |
| |
| The
above instructions will not be applicable in cases where the shares
/ debentures / securities are sold by overseas corporate bedies
owned directly or indirectly by non-residents of Indian nationality
/ Origin (NRIs) to the extent of at least 60 per cent, as also where
such assets sold by NRIs on repatriation basis were held for a
period upto 36 months [12 months in case of shares of a company or
listed securities or units of UTI or a notified mutual fund].
In such cases the instructions contained in paragraph 3 of A.D.
(M.A. Series) Circular No. 27 of 1982 will apply. |
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| Computation
of Long-Term Capital Gains realting to a Foreign Exchange Asset in
the case of Non-resident Indians (NRIs) |
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| For
computing the long-term Capital Gains following steps may be
followed:- |
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| Step
I Check that the asset which has been
transferred is a "foreign exchange asset" as defined
in Chapter XII-A of the Income-tax Act, 1961. |
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II Check that the asset transferred is a
capital asset and not stock-in-trade and a declaration
to that effect is submitted by the NRI. |
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III Find out the date from which the foreign
exchange asset has been 'held' by the NRI. |
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IV Check whether the asset has been 'held' for more
than 36 months [12 months in case of shares of a company or
listed securities or units of UTI or a notified mutual fund] before
its transfer. |
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V After the above has been checked, the capital
gains on the transfer of foreign exchange asset is
to be determined by substracting from the full value of
consideration received as a result of the transfer of the
asset, the following two amounts namely: |
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| (i)
Expenditure incurred wholly and exclusively in connection with such
transfer, for example, commission paid to a
broker (if accompanied by a receipt), |
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| (ii)
Cost of acquisition of the foreign exchange asset and the cost of
any improvement thereto. |
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| Note
1 : In this connection, it is clarified that
interest, if any, on cpaital borrowed for acquiring the asset will
not form part of the cost of acquisition or cost of improvement of
the asset. |
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| Note
2 : If the foreign exchange asset was on any
previous occasion a subject of negotiations for its transfer, any
advance or other money received and retained in respect of such
negotiations shall be deducted from the cost in computing the cost
of acquisition of the foreign exchange assets. |
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| The
following examples will illustrate as to how the long-term capital
gains are to be worked out: |
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| COMPUTATION
OF LONG-TERM CAPITAL GAINS |
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| Since
the shares were held for more than 12 months prior to their
transfer, the capital gains arising on their transfer are long-term
capital gains. Further, as the shares were subscribed to in
convertible foreign exchange, these are foreign exchange,
these are foreign exchange assets. Therefore, long-term
capital gains arising on their sale are governed by the provisions
of Chapter XII-A of teh Income-tax Act, 1961. The provision of
section 48, as to indexing the cost of acquisition shall not be
applicable to such transfer. Consequently tax @20% is to
be deducted by the authorised dealers before remitting such gains. |
