Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
 
 
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
 
 
 
 
Popular Search: ACCOUNTING STANDARD :: list of goods taxed at 4% :: cpt :: ARTICLES ON INPUT TAX CREDIT IN VAT :: Central Excise rule to resale the machines to a new company :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: VAT RATES :: VAT Audit :: articles on VAT and GST in India :: due date for vat payment :: TDS :: ACCOUNTING STANDARDS :: form 3cd :: empanelment :: TAX RATES - GOODS TAXABLE @ 4%
 
 
« News Headlines »
 Invoking Writ Jurisdiction For Income Tax Matters
 How to file income-tax returns online
 How Income Tax Returns Are Scrutinised
 All About New Income Disclosure Scheme to make Demonetisation successful
 Your deposit may draw income tax notice
 Accepting payment under IDS 2016
 New disclosure scheme could see 50% tax and 4-year limit on cash use for unaccounted deposits
 Pay 50% tax on unaccounted deposits, or 85% if caught, says Modi government
 Deadline to pay property tax in old currency extended
 Cabinet clears amendments to Income Tax Act
 Have you got interest on your income tax refund?

Tax rate on sale of securities by NRIs remains unresolved
December, 21st 2007

The stock market today is open for both residents and non-residents. While the long-term gain from the transfer of unlisted securities is taxable at 20%, gains in the case of listed securities are taxable only at 10% (without indexation) under the proviso to Section 112 of the Indian Income Tax Act. The question that arises in such cases is whether the benefit of reduced rate of 10% is applicable only to resident taxpayers or to non-resident taxpayers also.

Long-term gains arising on transfer of listed shares if entered into on a recognised stock exchange and subjected to securities transaction tax (STT) have already been exempted from income tax by the Finance Act 2004. The only dispute, therefore, remains in the case of listed securities traded otherwise than through recognised stock exchange.

The proviso to Section 112, which provides for the reduced rate of 10% in case of listed securities, deploys the expression before giving effect to the second proviso to Section 48. Second proviso to Section 48 provides for indexation benefits and is not applicable to sale of shares by non-residents to whom the first proviso to Section 48 (providing protection from foreign exchange fluctuations) applies.

Therefore, a controversy arises whether the words before giving effect to the second proviso to Section 48 used in the proviso to Section 112 has the effect of excluding those who cannot avail of the indexation benefit under the second proviso to Section 48, that is to say, non-residents.

The authority till now available in this respect was a decision of the Mumbai Tribunal in 2005 (ITA No 2552) wherein the Tribunal had held that as no effect had to be given for indexation in case of non-residents, the benefit under this section would also not be available to them and hence such long-term gains are taxable at 20%.

However, the Authority for Advance Rulings (AAR) has recently given a new turn to the controversy in the case of Timken France vs. DIT (294 ITR 513) by taking a view that the benefit of the proviso to Section 112 cannot be denied to the non-residents/foreign companies that are entitled to a different relief in terms of first proviso to Section 48.

The AAR has, in giving the said ruling, expressly differed from the interpretation adopted by the Tribunal and held that the benefit of concessional rate of 10% is available to all categories of taxpayers discussed in Section 112 (including non-residents) and clear words would have been deployed in the proviso if one particular category - for example, non-residents, were to be excluded. The AAR further noted that the words before giving effect to the second proviso to Section 48 do not by necessary implication exclude those ineligible for it and the eligibility to avail the benefit of indexation was not a sine qua non for applying the reduced rate of 10% prescribed by the proviso to Section 112.

The AAR also opined that the same interpretation would hold good for bonus shares also as the legislature did not intend to differentiate between the original and bonus shares in the matter of application of rate of tax.

The ruling by the AAR has come as a welcome relief to non-resident investors. However, as the ruling given by the AAR is binding only on the applicant who has sought the ruling and only has a persuasive/ argumentative value in other cases, the issue could lead to further litigation that can only be settled by the higher courts.

Till such resolution comes about, non-residents taxpayers may take an advance ruling in respect of such transactions to mitigate the associated risks.

Sunil M Lala is executive director and Pawan Kumar is associate director with PricewaterhouseCoopersTax Litigation Cell

 
 
Home | About Us | Terms and Conditions | Contact Us
Copyright 2016 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
E-catalogue online catalogue E-brochure online brochure online product catalogue online product catalogue e-catalogue Indi

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions