Taxation of investment income and on LTCG of a non-resident

Taxation of investment income and on LTCG of a non-resident

1.Tax will be calculated on gross basis

Section 115D deals with the computation of total income of non-residents. In computing the investment income of non-resident Indian, no deduction is to be allowed under any provision of the Act in respect of any expenditure or allowance thereabout.

2.No deduction allowed

No deduction under Chapter VI-A shall be allowed and indexation benefit will not be available, where the gross total income of a non-resident Indian consists only of investment income or/and long term capital gain. However, where the gross total income includes investment incomes or/and long term capital gain, the deduction under Chapter VI-A shall be allowed only on that portion of gross total income which does not include the investment income and long term capital gain.

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3.Tax rate on investment income and long term capital

Under section 115E, the investment income and long-term capital gains of non-resident Indians are to be treated as a separate block and charged to tax at flat rates.

Tax payable by shall be aggregate of –

  • (i)income-tax on Investment income at 20%;

  • (ii)income-tax on long term capital gains from transfer of specified assets (i.e., purchased in foreign currency) at 10%; and

  • (iii)income-tax on his other total income

4.Exemption for long-term capital gains

Where a non-resident Indian has transferred a long-term foreign exchange asset and has within a period of 6 months after the date of such transfer, invested the whole or part of the net consideration in any specified asset then

  • (i)If the cost of the new asset is not less than the net consideration in respect of the original asset , the whole of the capital gains shall not be charged to tax under section 45

  • (ii)If the cost of the new asset is less than the net consideration in respect of the original asset, the amount as calculated below shall not be charged to tax under section 45

Capital Gains * (Cost of Acquisition of New Asset/Net Consideration)

Notes:

  • Net consideration means the full value of consideration from transfer less expenditure incurred wholly and exclusively in connection with transfer.

  • Where the new asset is transferred or converted into money within a period of 3 years from the date of its acquisition, the amount of capital gains arising from the transfer of original asset not charged to tax earlier shall be deemed to be the income under the head “Capital Gains ‘’ relating to long term capital assets. The same shall be charged to tax in the previous year in which new asset is transferred or converted into money.

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