• NRI returned to India and became resident capital gains

Hello esteemed CAs,

I need your help for a quick question. I was once an NRI, living in US. I earned in USD, paid taxes there, and invested in equity. Later. I returned to India. I am now an ROR. I sold some of the equity I had bought back when I was an NRI (held for more than 24 months). This equity was purchased in USD. The money from the proceeds went to my USD bank account. My understanding is that the capital gain in this case will be calculated in USD, and then converted to INR based on TTBR of the last day of the month immediately preceding the month in which the transaction occurred. Is that correct? Will indexation be applicable? The rate of capital gains tax will be 20%, correct? I request you to refer to Havells India Ltd. V. ACIT ITA No.4695/DEL/2012 (DELHI), as well as to Aditya Balkrishna Shroff v. ITO (ITA No.4472/Mum/19) (Mumbai ITAT). In ITR2 capital gains calculations, what should be my cost of acquisition?
Asked 5 months ago in Capital Gains Tax

The case of Havells is based on the fact that there was purchase as well as redemption of shares in foreign currency and Aditya Balkrishna is based on loan extended by the assessee. In your case, you had purchased shares in USD but sold the shares in INR. Therefore, you need to compute your capital gains in INR only and not in USD. You need to just convert your purchase cost to INR based on exchange rate as on that date. The indexation would apply if the shares are not listed in India. If the shares are listed tax rate would be 10%, if unlisted it would be 20% with indexation. 

 

In case you need any further clarification do not hesitate to reach out. 

Prerna Peshori
CA, Pune
40 Answers

5.0 on 5.0

Hi, 

 

Since your earlier question did not mention that the shares are listed on US Index and are sold in USD, it was not very clear. You are right if the shares are purchased and sold in USD, the capital gains would be computed under section 45 in USD only and would subsequently be converted into INR by adopting TTBR rate as on last date of the  month preceding the month in which shares are sold. The same would be taxed at 20% with indexation. 

 

If this income would be also taxed in US, you can claim the credit of taxes paid in US. You need to additionally file form 67 for claiming tax credit. 

 

Also you need to disclose in ITR 2 - in schedule of foreign shares and assets even if you have sold the assets during the year as the condition for disclosure is that the asset should have been held at any time during the year. The cost of acquisition for the purpose of Capital gains you can convert at same TTBR rate of earlier month preceding the month when shares are sold. 

 

In case you need assistance, please reach out for consultations. 

Prerna Peshori
CA, Pune
40 Answers

5.0 on 5.0

Yes your understanding on calculation of capital gain is correct and in line with rule 115.

Yes indexation will be available.

Yes tax rate will be 20%.

 

Cost of acquisition shall be your USD value converted in INR using the above mentioned exchange rate.

 

You can boon phone consultation for more discussion.

 

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

Thank you

Naman Maloo
CA, Jaipur
4008 Answers
64 Consultations

5.0 on 5.0

Hi

 

Yes, your understanding is correct in line with Rule 115 of the Income tax rules. Calculate the gains in USD and convert into INR using TTBR rate of last day of month preceding the month of sale.

 

Tax rate would be 20%.

 

Indexation benefit would be available.

Lakshita Bhandari
CA, Mumbai
5638 Answers
763 Consultations

5.0 on 5.0

- The main point is your residential status at the time when shares were sold. As you have mentioned in the first question that now you are ROR. If at the time of selling shares your residential was Resident then your understanding is correct in respect to conversion of USD into INR. Yes indexation would be available and special tax rate is 20%. Effective tax rate would be 20.8%. COA would be actual cost incurred in USD. If your income is more than Rs. 50 lacs and less than Rs. 1 cr then surcharge @10% would be applicable 9effective tax rate would be 22.88%). If you earn any income apart from salary income (assuming salary income is subject to TDS), please recompute the total income in the same financial year before the due dates of payment of advance tax and pay advance tax to avoid payment of interest on account of short and deferment of payment of advance tax. 

 

- Gain on account of foreign currency fluctuation at the time of remitance of sale proceeds is not taxable as it does not arises due to transfer of capital assets.

Vivek Kumar Arora
CA, Delhi
4408 Answers
527 Consultations

5.0 on 5.0

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