I'm an NRI. I recently sold all my shares in a limited liability company that is family owned and operated, to my brother. The chartered accountant had me pay long term capital gains tax of 10% on the gross proceeds as per section 115E of the IT act 1961 - Shares in Indian Company falls under the definition of specified asset as applicable to NRI. Is this correct? Thanks.
Shares in Indian company fall under the definition of specied assets yes it is true. But we will have to examine whether shares in limited liability company falls within the definition of specified assets or not.
But as per section 115E tax @ 10 % is applicable to income by way of long term capital gains referred in para (b) of section 115E. Therefore your chartered accountant has treated the income from long term capital gains as from specied assets. This will have to be examined in detail.
The issue needs to evaluated as under -
Section 115E talks about the special rate of tax on NRI . As per section 115E(b)(ii) - the tax on the income by way of long term capital gain is 10% . Now the issue arises whether there is a long term capital gain ( LTCG)?.
section 2(29B ) talks about LTCG . As per this the LTCG which arises from the transfer of Long term capital assets ( LTCA) . Section 2(29A) defines the LTCA is the assets which is not the Short term capital assets ( STCA).
Now we go to STCA definition in section 2(42A) . As per this the short term capital assets means capital assets held by the assessee for not more than 36 months immediately proceeding the date of transfer . Thus in the case the period of 36 months holding period has to be counted on the date of transfer .
Now there are certain exception for the said holding period of 36 months -
a. In case of securities listed in the recognised stock exchange , the above period of 36 months shall be replaced by 12 months. This is not clear in this case whether the company listed or not ( most probably not listed ) . not considered here .
b. Share of a company , if the transfer has taken place between 01/04/2014 to 10/07/2014, the above period of 36 months shall be replaced by 12 months.- No dates are mentioned in the question.
In the absence of the above data , it is difficult to conclude that the income you have been charged is the LTCG . so please furnish all the requisite data for logical and lawful conclusion .
The shares were issued during different time periods ranging from 1972-2005.
Yes, you chartered accountant is correct
Dear Sir,
It is correct that shares in Indian companies fall within specified assets and taxes have been correctly deducted at 10% of long term capital gains.
As per section 115E, concessional tax of 20 percent is available in respect of investment income and 10% in respect of long term capital gains from the specified assets which are acquired out of convertible foreign exchange.
LTCG is fully exempted on sale of listed company shares, purchased by paying STT, provided the transaction is long-term. i.e that share are hold for period of more than 12 months .
We need more clarifications on suggesting your correct tax implications.
Please spell out the clarifications.
Whether it is a listed company or not. STT paid or not
In this case , the capital gain arising from the transfer of shares becomes the long term capital gain and then the provision of section 115E for the tax rate of 10% has been rightly applied .
In our opinion, the shares in Indian companies are specified asset, as per section 115C of the Income Tax Act.
Section 115E makes a distincbtion between long term capital gains of asset other than specified asset which is taxable @ 20%.
Further section 115E (b) (ii) proposes that income by way of long term capital gains (by implication) on sale of specified assets be taxed @ 10%.
Therefore by above logic, your chartered accountant has correctly deducted tax @ 10 %.
The shares which you have sold are the shares in Indian Company. We presume that You have held these shares for more than three years and hence profit arising out of it is long term capital gains.
Your tax liability under 115E (If you choose yourself to be governed by Chapter XII-A) or under section 112(1)(c)(iii) (if you choose yourself not to be governed by provisions of Chapter XII-A by mentioning the same in the return) is same i. e. 10.3% including surcharge.
However, if you choose the be Governed by the normal provisions of the Act and not the special Provisions of Non residents, you will be entitled to claim basic exemption available to the other residents.
In both the cases you will be entitled to deduct cost of acquisition and cost of transfer (Without indexation), before applying the tax rate.
