What Jaitley's Budget has to offer the NRIs

CA Rajesh Dhruva Tuesday 06th February 2018 10:25 EST

Presenting Fifth consecutive Union Budget Shri Arun Jaitley has continued Shri Narendra Modi Government's efforts and endeavors of Equity and Justice for all sections of society and fulfilling dreams and hopes of Rural & Poor population of India for just a simple decent living . The Budget promises to connect Rural Bharat with Urban India by making large allocations for Rural India and particularly providing for additional 80 mn free Gas connections ; 40 mn electric connections and 20 mn Toilets ; and to top it all begins an era of health care offering medical care facilities up to Rs. 0.5 mn to more than 100 mn poor families across India giving a distinct touch of Modicare to Medical care. The Budget balances to brighten all sectors of the economy and promises a 7% GDP Growth in years to follow.

For Non Resident Indians (NRIs) this Budget has few important announcements which are briefly discussed herein :

I. Long Term Gains of Equity shares and Equity Funds :

1. Capital gains arising from Equity Shares & Equity Mutual Funds held for more than 1 year and subjected to Security Transaction Tax presently exempt from Income Tax are now proposed to be taxed from 1st April 2018. As this exemption was biased against all other active and passive income earners who were subjected to tax in India and the quantam of Equity Long Term Capital Gains (LTCG) having ballooned to Rs. 367,000 crs in previous year the same are now to be to be taxed at flat rate of 10%.

To give level playing field against tax exemption of LTCG prior to 31st March an advantage of substituting Market Value as on 31st January 2018 as cost of purchase is offered for LTCG arising and taxed from 1st April 2018.

2. As such Equity Shares and Equity MFs sold before 31st March 2018 will be exempt from tax.

3. Equity Shares & Equity MFs sold on or after 1st April 2018 will be granted benefit of substituting Market Price or Net Asset Value on 31st January 2018 as the Purchase cost if the same is higher than actual purchase price .

4. If Equity Shares were not traded on 31st January ’18 traded price of the latest date before 31st January will be substituted.

5. If sale price is less than market value but more than actual purchase price such sale price will be substituted as purchase cost.

6. If sale price is less than market value and also purchase price then cost of purchase price will be determined as Long Term Capital Loss (LTCL).

7. For clarity examples of various situations of sale are computed herein for Equity purchased on 1st February 2016 for Rs. 100 ; traded at Rs. 200 on 31st January 2018 :
.01 100 shares sale on 25th March 2018 at Rs. 300. : Gain of Rs. 200 being Rs.300 – Rs.100 is Exempt from tax as sale before 1st April 2018 continues to enjoy old rule of being tax free.
.02 100 shares sale on 2nd April 2018 at Rs. 400 : Market value of Rs. 200 being more than Purchase the same will be deemed cost and Gains of Rs. 200 being Rs. 400 - Rs. 200 will attract tax of 10% .
.03 100 shares sale on 1st October 2018 at Rs. 150 : As the sale price is more than the Purchase price but less than Market Value of Rs. 200 ; Rs. 150 will be deemed Purchase and Gains be Nil being Rs. 150 - Rs. 150.
.04 100 shares sale 2nd December 2018 at Rs. 50 : As sale price is below the purchase price there will be Long Term Capital Loss of Rs. 50/- being Rs. 50 - Rs. 100 which can be set off against LTCG of other assets of current year or carried forward for 8 years and set off against LTCG of other assets..
.05 In above example above if the Market Vaue on 31st January 2018 was Rs. 50 than Purchase Price of Rs. 100 being more than MV of Rs. 50 ; Rs. 100 will be considered and deductible as Purchase Cost.

8. LTCG will be taxed at flat rate of 10% i.e. cost or market value as on 31st January ’18 only will be deductible from sale price and such purchase price or market value will not be allowed benefit of indexation as in case of all other LTCG.
.02 For Non Residents computation of LTCG will be in Indian Rupees only and not in Foreign Currency of original investment as provided presently.

9. Capital gains of Non Residents will be subject to Tax Deduction at Source (TDS) at the rate of 10%.

10. In case of bonus shares which are acquired free of charge market value of the said shares as on 31st January 2018 will be considered as purchase price and will deductible from sale price to compute taxable LTCG.
.02 If Equities sold before 31st March 2018 results in a loss same will not be set off or carried forward as capital gains are exempt.

II. Filing Tax Returns :

1. Presently for financial year ending on 31st March , due date for filing Tax Returns for most of the NRIs is 31st July/.
.02 NRIs missing the due date have an option of fling latest by 31st March of the following year.
.03 Delay in filing return will be subject to penalty ranging from Rs. 1,000/- to Rs. 10,000/-.

2. Such gains will be taxed in Rupees only and will not be computed in Foreign Exchange as permissible / if the sale price is less than market value as on 31st January 2018 then higher on such sale price or actual cost will be considered as cost of purchase.

III. International Financial Services Centre (IFSC) :

1. To promote IFSC in India like Gujarat International Finance Tec-City (GIFT) Non Residents are granted tax exemptions for foreign currency gains arising from transactions on a recognized Stock Exchange allocated in IFSC .
02 The exemption is granted for trading in Forex Bonds ; Global Depository Receipts ; Indian Corporate INR Bonds and Derivatives.

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