Taxability of Long-term Capital Gains for NRI

[TNSV DESIKAN]

AN NRI who has sold shares in India (through ICICI Direct.com) and paid STT has claimed complete

exemption for LTCG for the Asst. year 2010-11. According to him the ITO says that such exemption

is available only for resident assessees. Is the view of the ITO correct ?  --  RAJU (Student)

[ROHAN THAKKAR]

 

 

Dear Sir,

If the equity shares or equity oriented fund are sold through recognised stock exchange and STT is paid thereron, then the entire long term capital gain is exempt. The exemption has been provided in section 10(38) of the Income Tax Act.

 The section reads as under:

Section 10 (38) any income arising from the transfer of a long-term capital asset, being an equity share in a company or a unit of an equity oriented fund where—

           (a) the transaction of sale of such equity share or unit is entered into on or after the date on which Chapter VII of the Finance (No. 2) Act, 2004 comes into force; and

           (b) such transaction is chargeable to securities transaction tax under that Chapter :

     Provided that the income by way of long-term capital gain of a company shall be taken into account in computing the book profit and income-tax payable under section 115JB.

     Explanation.—For the purposes of this clause, "equity oriented fund" means a fund—

           (i) where the investible funds are invested by way of equity shares in domestic companies to the extent of more than sixty-five per cent of the total proceeds of such fund; and

           (ii) which has been set up under a scheme of a Mutual Fund specified under clause (23D) :

     Provided that the percentage of equity shareholding of the fund shall be computed with reference to the annual average of the monthly averages of the opening and closing figures

Thus, section 10(38) no where specifies that it is available to a resident only and it will not be available to non resident. Thus, the benefit of said section can also be availed by the NRI.

Neither section 115D has stated that such income be taxable in the hands of NRI though it contains a special provision regarding taxability for Non Residents.

Further there are special provisions regading computation of income for NRI. However, NRI is having an option whether he wishes to continue to be governed by the special provisions or general provisions. [ Section 115-I]

Regards,

Rohan Thakkar

922 872 05 36

AI Summary

Long-term capital gains exemption on listed equity with STT applies to NRIs when the sale is on a recognised exchange. Long-term capital gains from sale of equity shares or units of equity oriented funds on a recognised stock exchange that are chargeable to securities transaction tax are exempt under the statutory exemption; the exemption does not limit availability to residents and therefore applies to non-resident Indians who satisfy the transactional conditions. Special non-resident computation provisions do not nullify this exemption and a non-resident may elect the special or general computation regime.