Capital Asset is property of every kind held
by an individual, and for the purpose of taxation, includes shares,
debentures, government securities, bonds, units of UTI and Mutual
Funds, immovable property, etc. The following do not come under
the purview of capital assets:
-
Personal effects like electronic items,
apparel, furniture etc.
-
Agricultural land
-
Some specified bonds e.g. 6.5% Gold Bonds
1977, 7% Gold Bonds 1980
-
National Defence Gold Bonds 1980, Special
Bearer Bonds 1991, Gold Deposit Bonds 1999
Capital Gain
Capital Gain is the profit or loss arising from the transfer
of a capital asset.
Types of capital gains
Capital gains are classified as long term and short term depending
upon the duration for which the asset is held by the person. These
are:
-
Short-term capital asset: An asset,
which is sold within a period of 36 months after its purchase
is a short-term capital asset.
-
Long-term capital asset: Any asset,
which is sold after 36 months of its purchase, is a long-term
capital asset. However, this criterion of holding period is
relaxed to 12 months in case of the following assets:
-
Equity and preference shares, debentures
or any other financial instrument listed on a recognized stock
exchange in India
-
Units of UTI or any other Mutual Fund
-
Zero coupon bonds
Rates of tax for long term and short-term capital gains
| Type of asset |
Rate of tax deduction
at source (TDS) |
Exemption available (only for long term capital
gains) |
| |
Long term |
Short term |
|
| A) Assets purchased in Indian currency |
|
|
|
| Equity share in listed companies and Securities Transaction
Tax is paid |
Nil |
10.2% (11.22% if the total income exceeds Rs 10 lakh) |
Not applicable as long term capital gain is fully exempt |
| Unit of equity oriented mutual fund |
Nil |
10.2% (11.22% if the total income exceeds Rs 10 lakh) |
NA as long term capital gain is fully exempt |
B) Specified assets purchased by remitting foreign
currency to India
- Equity shares in Indian companies
- Debentures and deposits in Indian public companies
- Central Government securities
|
10.2% (11.22% if the total income exceeds Rs 10 lakh)
|
30.6% (33.99% if the total income exceeds Rs 10 lakh)
|
Capital gains proportionate to the amount of net consideration
which is reinvested in the specified assets in column 1.(See
example 1 below)
|
C) Other Assets
If the assets are not included in any of the special categories
above
e.g house property, land and building, jewelry, development
rights etc.
|
20.4%
(22.24% of the income exceeds Rs 10 lakh)
|
30.6% (33.99% if the total income exceeds Rs 10 lakh)
|
If the amount of capital gains is invested in bonds of National
Highways Authority of India or Rural Electrification Corporation,
then the entire capital gains is exempt, else the proportionate
gain is exempt.
See Example 2 below
As per the financial budget 2007-08, a cap of Rs. 50 lakh
has been imposed on capital gains from the sale of property. |
Example 1: If the net consideration from the
sale of an asset is Rs 100,000 and the NRI re-invests the entire
proceeds in a new specified asset, then the entire capital gain
on the sale is exempt from tax. If he invests Rs 80,000, then
80% of the capital gains is exempt.
However there is a cap of Rs. 50 lakh on tax exemptions for long-term
capital gains from the sale of property.
Example 2: If a fresh investment of only the
capital gain is made, then the entire capital gain is exempted.
If the investment is only 50% of the capital gain, exemption is
granted in equal proportion.
Filing income tax returns in India
If the only income of the NRI in India is the long term capital
gains on specified asset as mentioned in category B in the table
above or the investment income from such assets, then there is
no need to file a return of income in India. If the NRI also has
some other income like rent, salary, professional income and income
from non-specified assets, then he will have to file an income
tax return by the 31st of July.
Gains against Losses
When a NRI has incurred a loss on the sale of one set of shares
and a profit on another, he can set off the loss against the gain
and claim a tax benefit, provided both deals are made in the same
financial year. In this case, the NRI can apply for a tax exemption
certificate prior to the sale of shares of the second lot where
he has capital gains to ensure a set - off and apply for nil or
lower deduction of tax.
