Section 5(2) says that A non-resident is taxable in India only on income that: Is received or deemed to be received in India, or Accrues or arises or is deemed to accrue or arise in India Capital gain on transfer of assets: If the capital asset is situated in India, the gain is taxable in India, eveRead more
Section 5(2) says that A non-resident is taxable in India only on income that:
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Is received or deemed to be received in India, or
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Accrues or arises or is deemed to accrue or arise in India
Capital gain on transfer of assets:
If the capital asset is situated in India, the gain is taxable in India, even for non-residents. This is supported by Section 9(1)(i).
Section 48, First Proviso (Simplified Text) provide the method of calculating the tax in case of a non-resident, capital gains arising from the transfer of shares or debentures of an Indian company shall be computed by:
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Converting the cost of acquisition, expenditure incurred, and sale consideration into the same foreign currency used to purchase the asset;
Then computing the capital gain in that foreign currency;
Finally, converting the capital gain into Indian Rupees.
Indexation benefit is NOT allowed in this computation.
For assets other than shares/debentures, e.g., immovable property, the First Proviso of Section 48 does not apply.
➡️ Computation follows normal rules:
Sale Price – (Indexed Cost + Transfer Expenses)
Indexation is allowed for long-term capital assets
➡️ Tax Rates:
LTCG (on immovable property) → 20% with indexation
STCG → Taxed at slab rates
Conclusion:
Capital gain is taxable in India for non-residents if the asset is located in India
For shares/debentures of Indian companies, Section 48 First Proviso applies – computation must be in foreign currency without indexation
For other assets, capital gains are computed in INR, with indexation allowed for LTCG
Special tax regime for NRIs under Section 115C–115I applies only if they invest in foreign currency in specified assets
TDS rules under Section 195 are applicable on remittance/payments to non-residents
Self-generated assets are those which: Are not purchased or acquired for a price Are created or developed over time by the assessee's own effort or business activities Common Examples: Goodwill of a business Brand name Tenancy rights Route permits Loom hours Right to manufacture or carry on a profesRead more
Self-generated assets are those which:
Are not purchased or acquired for a price
Are created or developed over time by the assessee’s own effort or business activities
Common Examples:
Goodwill of a business
Brand name
Tenancy rights
Route permits
Loom hours
Right to manufacture or carry on a profession
Section 55(2)(a) says that “Cost of acquisition” of self-generated assets like goodwill, trademark, brand name, tenancy rights, etc., shall be taken as Nil if it is self-generated.
Similarly, Section 55(1)(b) provides that “The cost of improvement” shall also be Nil, if the asset is self-generated.
Capital Gain = Full Value of Consideration – (Cost of Acquisition + Cost of Improvement + Expenses on Transfer)
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