• Money received on Liquidation of a Limited Company in UK

Hi - I was a UK resident for 10 years came back to India on Oct 2018. I am in process of liquidating my UK Limited company and as a result, we would have Capital Gains which would be distributed 50% each between me and my wife we would have paid 10% Tax there already as per taxation process there. The amount would be in excess of 2 cr after UK tax. Now by the time, it all gets done we would be in Resident category in India for that financial year which would be 2020-2021 so UK capital gains taxed as global income in India.

My query is, please could you advise in ITR-2 while filing our returns as we understand we have to show the UK Capital Gains in FSI column, what exact tax bracket like 10% 20% would this UK Capital Gains fall in India. As per India's IT2 form there is 10% Long Term Capital Gain Tax and 20% not sure which one this falls under. Just to let know the company was opened in Oct 2010 and most probably be liquidated by mid-2020. 

Also, need to understand if we pay extra on top of what we have already paid in the UK.

Appreciate if you can show a sample calculation as per the below figures for my understanding. 

Each me and my wife

UK Capital Gains - 1.2 cr each
UK Tax paid - 12 lacs each
India Income total - Not sure as of now, if we take up a job may be 25 lacs added for that year. If not then some 10 lacs of interest income.

Thanks for looking into my query.
Asked 13 days ago in Capital Gains Tax from Bangalore, Karnataka

Hello,

 

Taxation in India is based on residential status and since you have already mentioned that you would be a resident of India at the time of disposing of the share in the company, the capital gains on the same would be taxable in India. As per the period of holding of the shares, it would be taxable as Long Term Capital Gains in India.

Regarding how to declare this capital gain in ITR-2, since this transaction would take effect in F.Y. 2020-21 and the return forms for the period would be made available by the department after the end of the F.Y. i.e. after 31st March 2021. There are changes every year in return formats and therefore advice regarding the same can't be provided now.

Yes, the taxes paid in the UK would be available as a credit while paying income tax in India as per the provisions of the DTAA b/w India and UK.

 

I hope that this answer satisfies your requirements.

 

Regards,

CA Hunny Badlani

Badlani & Associates

Hunny Badlani
CA, Madhya Pradesh
1063 Answers
3 Consultations

5.0 on 5.0

Hi

 

Please check your residential status for FY 20-21. It could be RNOR depending on your stay in India in previous years.

 

You will be considered Resident but Not Ordinarily Resident in a year – if you are a Resident AND-

  • If you have been an NRI in 9 out of 10 financial years preceding the year.

OR

  • You have during the 7 financial years preceding the year been in India for a period of 729 days or less.

For RNOR status, only incomes earned or accrued in India shall be taxable. Accordingly, capital gains in UK shall not have to be considered while filing Indian ITR.

 

In case you don't qualify as a RNOR and only as a resident, then your global income shall be taxable. Capital gains shall have to be calculated as per Indian tax laws. Relief of taxes paid in UK shall be available as Foreign Tax Credit for which you will have to file Form 67 before filing ITR.

 

We may discuss the issues further.

Lakshita Bhandari
CA, Mumbai
3794 Answers
189 Consultations

5.0 on 5.0

Dear Sir,

 

Hope you are doing well !!

 

The taxability of an individual in India depends upon his residential status in India for any particular financial year. 

 

For the purpose of income tax in India, the income tax laws in India classifies taxable persons as:

 

a. A resident

b. A resident not ordinarily resident (RNOR)

c. A non-resident (NR)

 

The taxability differs for each of the above categories of taxpayers. Before we get into taxability, let us first understand how a taxpayer becomes a resident, an RNOR or an NR.

 

Resident

A taxpayer would qualify as a resident of India if he satisfies one of the following 2 conditions :

1. Stay in India for a year is 182 days or more or

2. Stay in India for the immediately 4 preceding years is 365 days or more and 60 days or more in the relevant financial year

In the event an individual leaves India for employment during an FY, he will qualify as a resident of India only if he stays in India for 182 days or more. This otherwise means, condition (b) above of 60 days would not apply to him

 

Resident Not Ordinarily Resident

If an individual qualifies as a resident, the next step is to determine if he/she is a Resident ordinarily resident (ROR) or an RNOR. He will be a ROR if he meets both of the following conditions:

1. Has been a resident of India in at least 2 out of 10 years immediately previous years and

2. Has stayed in India for at least 730 days in 7 immediately preceding years

Therefore, if any individual fails to satisfy even one of the above conditions, he would be an RNOR.

 

Non-resident

An individual satisfying neither of the conditions stated in (a) or (b) above would be an NR for the year.

 

3. Taxability

Resident: A resident will be charged to tax in India on his global income i.e. income earned in India as well as income earned outside India.

 

NR and RNOR: Their tax liability in India is restricted to the income they earn in India. They need not pay any tax in India on their foreign income.

 

 

 

-Please check your residential status according to above explanations.

 

-Also note that in a case of double taxation of income where the same income is getting taxed in India as well as abroad, one may resort to the Double Taxation Avoidance Agreement (DTAA) that India would have entered into with the other country in order to eliminate the possibility of paying taxes twice.

 

-In accordance with Rule 128, in order to claim FTC (foreign tax credit), you would be required to file following documents on or before due date of filing of return:

  1. A statement of :

  • foreign income offered to tax
  • foreign tax deducted or paid on such income in Form No. 67

  1. Certificate or statement specifying the nature of income and the amount of tax deducted therefrom or paid by the taxpayer :

  • From the tax authority of the foreign country
  • from the person responsible for the deduction of such tax
  • signed by the taxpayer

  1. Proof of payment of taxes outside India

 

We may assist you in entire procedure.

 

Payal Chhajed
CA, Mumbai
3165 Answers
41 Consultations

5.0 on 5.0

At the time of liquidation, assets would be sold out to pay of the liabilities and the surplus gets distributed among the shareholders in the ratio of their shareholding. At the time of filing ITR, apart from FSI and TR schedule, you need to fill Schedule CG also. Special rate is 20% plus surcharge of 15% plus cess 4% i.e. 23.92%.

Vivek Kumar Arora
CA, Delhi
3162 Answers
162 Consultations

5.0 on 5.0

The above transaction would be covered under 20% tax for capital gain and you will get benefit of indexation as it would be long term capital gain.

 

As per DTAA between India and UK it says capital gain would be charged by each country as per its domestic law so its not clear as in which country we need to pay tax.

 

So if we go by prudence I dont think you need to pay tax in both country you can take credit of tax paid in foreign country while filing return in India.

 

Hope you find the information helpful if you do please rate it 5 and provide your valuable feedback for my improvement.

Thank you.

Naman Maloo
CA, Jaipur
2216 Answers
19 Consultations

5.0 on 5.0

Ask a Chartered Accountant

Get tax answers from top-rated CAs in 1 hour. It's quick, easy, and anonymous!
  Ask a CA