You can transfer securities from resident demat to NRO accounts
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Recently I got my US green card. I am 79 and I file my tax returns regularly. My income is below taxable limits. I had bought shares 40 years back. Can I transfer these to an NRO demat account? Can I sell these shares and then transfer to an NRO account? Will Foreign Account Tax Compliance Act (Fatca) apply on this?
—N. C. Mohile
Under the exchange control laws, when an individual leaves India for employment or for business or vocation outside India or for any other purpose indicating his intention to stay abroad for an uncertain period, his existing resident bank account should be designated as a non-resident-ordinary (NRO) account due to change in his residential status. The residential status under the exchange control laws is different from that under the income-tax laws.
Inform the change of residential status to the bank. Your resident bank account will be designated as NRO account. But a new non-resident demat (NR demat) account will be opened and securities would be transferred from the resident demat account to it, and the former will be closed.
You may sell the shares from the NR demat account and transfer the sale proceeds to your NRO account in India. You may remit up to $1 million per financial year from your NRO account for all bonafide purposes and subject to payment of tax. Tax will be deducted at source from sale proceeds only if the capital gain is taxable in India. A person whose total taxable income in India does not exceed the amount not chargeable to tax (Rs2.5 lakh), is not liable to pay tax.
Capital gains on sale of equity shares listed on a recognized stock exchange in India will be classified as long term if held for more than 12 months. Long-term capital gains (LTCG) from their sale are tax exempt if securities transaction tax is paid.
India has signed an agreement with the US under the Fatca of US. Under this, financial institutions in India are required to report details of financial investments made by US taxpayers in India to the US tax authorities, and vice-versa.
The financial institution in India may obtain a self-declaration from you with respect to your residential status in the US and investments in India.
Sonu Iyer is tax partner and people advisory services leader, EY India.
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