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What is the long-term capital gain tax rate in case of sale of listed preference shares for non-residents? Is it 20% or 10%, with or without indexation?

- Anonymous

It is assumed that the question is in relation to shares in an Indian company. There can be two scenarios – either the shares are purchased in foreign currency or in Indian currency by the non-resident.

If shares are purchased in foreign currency, capital gain is calculated in foreign currency and then converted into Indian currency. In this case, benefit of indexation of cost is not available, however, the applicable tax rate shall be 10% plus applicable surcharge and cess.

Permissibility of purchasing Indian shares in foreign currency is governed by Foreign Exchange Management Act (FEMA), 1999, related rules/regulations and FDI guidelines. Subject to compliance of the above, there may be a situation where foreign investor can purchase share of an Indian company in foreign currency.

If shares are purchased in Indian currency, then there is no requirement of conversion/ reconversion of capital gain in foreign currency. The capital gain is calculated as per sale price and cost of acquisition in INR. The taxpayer will have an option to choose the lower between tax rate of 20% with indexation and 10% without indexation.

In case of listed units that are equity-oriented, the Long Term Capital Gain (LTCG) shall be taxed under section 112A of the Act (provided Securities Transactions Tax is paid at the time of sale). LTCG exceeding 1 lakh shall be taxed at 10% without any indexation of cost. Also, in case the units were purchased before 31 January, 2018 then the benefit of grandfathering shall also be considered while calculating the capital gains (i.e. difference between market price as on 31 January 2018 and purchase price shall be considered as exempt from tax).

In case of listed units that are debt oriented, the LTCG shall be taxed at 20%. Benefit of indexation of cost shall be available. Take note that debt-oriented units shall be considered as ‘long-term’ only after 36 months of holding period.

In case of unlisted funds, either equity oriented or debt oriented, the gains shall be taxed at 10% without indexation, in case of a non-resident seller.

Further, if the query is with regard to foreign shares it may be noted that foreign shares even though listed on a stock exchange outside India shall be treated as unlisted for the purpose of taxation in India and tax rates as applicable to unlisted shares shall apply.

-Answered by Shailesh Kumar, Partner, Nangia & Co LLP. Send queries at



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