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a.
Under section 115E of the Income Tax Act, where shares in the Company are acquired or subscribed to
in convertible Foreign Exchange by a Non-Resident Indian, capital gains arising to the non-resident on
transfer of shares held for a period exceeding twelve months, shall be concessionally taxed at the flat
rate of 10% (plus applicable surcharge and cess), without indexation benefit.
b.
Under section 115F of the Income Tax Act, long-term capital gains arising to a Non- Resident Indian
from the transfer of shares of the Company subscribed to in convertible Foreign Exchange shall be
exempt from Income-tax, if the net consideration is reinvested in specified asset or in any savings
certificate as defined by section 10(4B) of the Income Tax Act, within six months of the date of
transfer. If only part of the net consideration is so reinvested, the exemption shall be proportionately
reduced. The amount so exempted shall be chargeable to tax subsequently, if the specified assets are
transferred or converted into money within three years from the date of their acquisition.
c.
Under section 115G of the Income Tax Act, Non-Resident Indians are not required to file a return of
income under Section 139(1) of the Income Tax Act, if their only income is income from foreign
exchange asset investments or long-term capital gains in respect of those assets or both, provided tax
has been deducted at source from such income as per the provisions of Chapter XVII-B of the Income
Tax Act.
d.
Under Section 115H of the Income Tax Act, where the Non-Resident Indian becomes assessable as a
resident in India, he may furnish a declaration in writing to the Assessing Officer, along with his return
of income for that year under Section 139 of the Income Tax Act to the effect that the provisions of the
Chapter XII-A shall continue to apply to him in relation to such investment income derived from the
specified assets for that year and subsequent assessment years until such assets are converted into
money.
11.
Under section 90(2) of the Income Tax Act, the provisions of the Income Tax Act would prevail over the
provisions of the double tax avoidance agreement (“tax treaty”) entered between India and the country of
fiscal domicile of the non-resident, if any, to the extent they are more beneficial to the non-resident. Thus,
a non-resident (including NRIs) can opt to be governed by the provisions of the Income Tax Act or the
applicable tax treaty, whichever is more beneficial.
Special Tax Benefits
There are no special tax benefits available to the non-resident shareholders.
E.
Benefits to Foreign Institutional Investors (FIIs)
General Tax Benefits
1.
In terms of section 10(34) of the Income Tax Act, any income by way of dividends referred to in section
115-O (i.e. dividends declared, distributed or paid on or after 1 April 2003) received on the shares of the
Company is exempt from tax.
2.
In terms of section 10(38) of the Income Tax Act, any long-term capital gains arising to an investor from
transfer of long-term capital asset being an equity share in a company or a unit of an equity oriented fund
would not be liable to tax in the hands of the investor if the following conditions are satisfied:
a)
The transaction of sale of such equity share is entered into on or after October 1,2004;
b)
The transaction is chargeable to securities transaction tax as explained below.
3.
Section 14A of the Income Tax Act restricts claim for deduction of expenses incurred in relation to income
which does not form part of the total income under the Income Tax Act viz income received under sections
10(34), 10(35), etc. Thus, any expenditure incurred to earn the said income is not a tax-deductible
expenditure.
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4.
Under section 36(1) (xv) of the Income Tax Act, securities transaction tax paid by a shareholder in respect
of the taxable securities transactions entered into in the course of his business, would be allowed as a
deduction if the income arising from such taxable securities transactions is included in the income
computed under the head “Profit and gains of business or profession”. As such, no deduction in respect of
amount paid on account of securities transaction tax will be allowed in computing the income chargeable to
tax as capital gains.
5.
The income by way of short-term capital gains/ long-term capital gains realized by FIIs on sale of shares in
the Company would be taxed at 30%/ 10% respectively, as per section 115AD of the Income Tax Act.
However, in respect of short term capital gains referred to in section 111A the tax rate applicable will be
15% (plus applicable surcharge and cess). The benefit of indexation and foreign currency fluctuation
protection as provided by section 48 of the Income Tax Act are not applicable to FIIs. Further, if the gross
total income of the FII includes any short term capital gains referred to above, deduction under Chapter VI-
A of the Income Tax Act shall be allowed from the gross total income as reduced by such short term
capital gains.
6.
Under Section 54EC of the Income Tax Act, capital gain arising from transfer of long-term capital assets
(other than those exempt under section 10(38) of the Income Tax Act) is exempt from tax, if the capital
gains are invested in certain notified bonds within a period of six months from the date of transfer, up to a
maximum limit of Rs. 5 million during any financial year for a period of three years. For investments made
on or after 1 April 2007, the notified bonds are
a)
NHAI, constituted under section 3 of National Highways Authority of India Act, 1988 and notified by
the Central Government in the Official Gazette for the purpose of this section; or
b)
RECL, a company formed and registered under the Companies Act and notified by the Central
Government in the Official Gazette for the purpose of this section;
If only part of the capital gain is invested, the exemption will be proportionately reduced. However, if the
new bonds are transferred or converted into money within three years from the date of their acquisition the
amount so exempted will be chargeable to tax.
7.
Under section 196D (2) of the Act, no deduction of tax at source will be made in respect of income by way
of capital gain arising from the transfer of securities referred to in section 115AD.
8.
Under section 90(2) of the Income Tax Act, the provisions of the Income Tax Act would prevail over the
provisions of the tax treaty to the extent they are more beneficial to the non-resident. Thus, a non-resident
can opt to be governed by the provisions of the Income Tax Act or the applicable tax treaty, whichever is
more beneficial.
Special Tax Benefits
There are no special tax benefits available to the FIIs.
F.
Benefits to the Mutual funds
General Tax Benefits
Under section 10(23D) of the Income Tax Act, any income of Mutual Funds set up by Public Sector Banks or
Public Financial Institutions or Mutual Funds registered under the Securities and Exchange Board of India Act,
1992 or regulations made thereunder or Mutual Funds authorised by the Reserve Bank of India, subject to the
conditions specified, would be exempt from income tax.
Special Tax Benefits
There are no special tax benefits available to the mutual funds.
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