• Looking to reduce liability from Capital Gain tax after becoming Ireland NRI

I am employed in India with FY20-21 annual income over 50 Lakhs. I am relocating to Ireland in March'21. I have US listed stocks given by my Indian employer in my US trading account.

For US listed stocks, the Long term (24 months) Capital gain tax in India is 20% (+Indexation benefit?) and in Ireland it is 33% (for the gain that is remitted to Ireland post) if I sell after I am resident of Ireland. Similarly for my Indian stocks/MFs portfolio, the LTGC in India is 10% (post 1L) and in Ireland, it would be same 33%.

Given I will be NRI in next FY, I am looking some way out to reduce the tax burden for the amount that I may want to remit to Ireland eventually.

The only way I found online was to realise my gains in India, and then transfer the money to my parents Indian bank account. And then my parents transfer that money to mine and my spouse's Irish bank in chunks of 3000 Euro per year due to the following exemption: 
https://www.revenue.ie/en/gains-gifts-and-inheritance/gift-and-inheritance-tax-cat/what-do-you-not-pay-cat-on.aspx

Any inputs would be appreciated?
Asked 4 months ago in Capital Gains Tax

- It is better to sell them in India and pay tax @20% on long term capital gain on foreign equity and 10% on Indian equity. You can transfer from your own account to Irish account instead of routing it thru parents account. tax once paid in India will not be taxed again on own money. On foreign equity you can pay tax @10% without indexation subject to comparison with 20% with indexation.

Vivek Kumar Arora
CA, Delhi
4063 Answers
338 Consultations

5.0 on 5.0

As you are likely to stay in India for more than 182 days during the FY 2020-21, you will be resident in India and your global income will be taxed in India for the FY 2020-21 relevant to the assessment year. Thus, the income earned in Ireland will also be taxable in India. 

Now if you sell the US listed stocks during the FY 2020-21, you will be paying tax in India on the criteria of residency. Further, you will also be paying tax in USA on the criteria of source of income. However, you will be entitled to double taxation relief if you are selling the stocks in FY 2020-21.  As you are not a resident in Ireland, during the FY 2020-21, you will not have any tax liability in Ireland but you may have tax liability in USA as the stocks are listed in USA. (Remember the famous Vodafone case, wherein the stocks listed in India were sold by two non residents outside India but still the IT Department took the view that there was income that had accrued in India because the stocks were in Indian companies. Though the Government lost the case, the Income Tax Act was amended later to include assets located in India for assessment purposes. I think similar is the situation in USA too).

The tax liability for the assessment year 2021-22 is the incidence of tax in USA and India and not in Ireland, as you may not be a Resident in Ireland during the FY 2020-21. Your decision to sell or hold should therefore be based upon tax rates prevailing in India and USA during the FY 2020-21 and tax rates prevailing in USA and Ireland in the FY 2021-22 and onwards. 

There is a Double Taxation Avoidance Treaty (DTAA) between India and USA but I am not sure if there is any such agreement between USA and Ireland. So you need to decide accordingly.  

B Vijaya Kumar
CA, Hyderabad
923 Answers
86 Consultations

5.0 on 5.0

Hello,

 

If you have decided to realise the investments, it is better to sell them off in India due to the lower rate of tax, as compared to Ireland (In Ireland, tax on capital gain arising on sale of certain specified foreign investment products is 40%). 

For LTCG on US listed stocks, tax rate would be 20% with indexation [there is no option available to claim 10% without indexation in your case]

 

For LTCG on Indian listed stocks, tax rate would be 10% (post Rs. 1 lakh).

 

You need not transfer the money to your parents account. You can directly remit the money from your own account and that would not be taxable in Ireland.

 

Alternatively, if you do not want to sell the shares right now, you may gift the shares to your parents before you move to ireland - There would be no tax implication on account of such gifting. Subsequently, whenever you want money to be remitted to you in Ireland, your parents may sell off the shares and remit the money to you by way of gift, in chunks of €3000 per year.  At the time of sale, the taxation in the hands of your parents will be the same as mentioned above.

 

There can be other alternatives as well, depending upon your exact requirement.

 

 

Yogesh Malpani
CA, Mumbai
49 Answers
6 Consultations

5.0 on 5.0

Dear Sir,

 

Hope you are doing well !!

 

It is advisable to sell them in India.

 

Foreign shares held by an individual for more than 24 months are treated as long-term capital assets and others are treated as short-term capital assets. Capital gain from sale of long-term capital assets would be taxed at 20% with the indexation benefit on purchase price or at 10% without such indexation benefit.

 

The capital gain tax rate is much higher in Ireland.

 

Also, you don't need to transfer the money to your parents accounts.

 

You can directly transfer to your own account without further tax liabilities.

 

We may assist you in entire procedure.

 

It is advisable to take a phone consultation for detailed discussion.

 

 

Payal Chhajed
CA, Mumbai
5077 Answers
152 Consultations

5.0 on 5.0

Hi

 

To avoid a higher tax payment, the securities should be sold in India only till you are a resident here.

However if you still want to hold the securities for appreciations, a way out could be to gift these securities to your parents. Gifts from relatives are exempt under income tax act. Your parents, being resident in India, may sell shares layer when required and remit money to you as gift.

Lakshita Bhandari
CA, Mumbai
5460 Answers
539 Consultations

5.0 on 5.0

Hi

 

Taxation of income from foreign stocks

The taxation of foreign shares considers factors such as the date of acquisition of shares, the purchase and sale prices as well as the period of holding of shares. This would help individuals understand the tax rates applicable on the income.

Foreign shares held by an individual for more than 24 months are treated as long-term capital assets and others are treated as short-term capital assets. Capital gain from sale of long-term capital assets would be taxed at 20% with the indexation benefit on purchase price or at 10% without such indexation benefit. Indexation is applied to adjust for inflation over the period of holding the asset. Capital gains from sale of short-term capital assets would be taxed at the slab rates applicable for the individual.

For individuals qualifying as a Resident and Ordinarily Resident (ROR) in India, the income is taxable in India. However, in case of a Non-resident (NR) or Resident but Not Ordinarily Resident (RNOR), income earned and received outside India is generally not taxable.

There are some reliefs provided under Indian tax laws in case capital gains are reinvested in prescribed schemes/assets. Overall, taxation of capital gains is a wider concept and needs deeper analysis.

It is better to sell them in India. Or you can transfer to your parents as a gift. We may assist you in planning

Please have a phone consultation for details discussion.

Karishma Chhajer
CA, Jodhpur
2387 Answers
20 Consultations

5.0 on 5.0

Once you are an NRI you might not get the tax rate mentioned above for US stocks and Indian stocks.

Further your US stocks won't be taxable then in India.

the tax free limits is 32500?

 

Hope you find the information helpful if you do please rate it 5 and provide your valuable feedback for my improvement. You can even book phone consultation for further personal assistance.

Thank you.

 

Naman Maloo
CA, Jaipur
3791 Answers
45 Consultations

5.0 on 5.0

- FIFO is method of valuation of stock which is applicable in case of business income. In your case, it is a capital gain therefore no concept of FIFO applicable in your case. Capital gain will be taxable under capital gain head and dividend under other sources.


You can sell any stock as per your convenience.

Vivek Kumar Arora
CA, Delhi
4063 Answers
338 Consultations

5.0 on 5.0

Hi

 

For calculation of income under capital gain head  FIFO method is not applicable.

Karishma Chhajer
CA, Jodhpur
2387 Answers
20 Consultations

5.0 on 5.0

As discussed, you'll get an option to select which stocks you're selling. Accordingly the capital gain calculation shall be done.

Lakshita Bhandari
CA, Mumbai
5460 Answers
539 Consultations

5.0 on 5.0

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