Long-term capital gains are taxed at 20% plus surcharge, education cess2 min read . Updated: 27 Sep 2020, 09:38 PM IST
- If the investment is regarded as a capital asset, the capital gains from the transfer of the foreign investment shall be taxable
- Also, at the time of maturity there could be a potential tax implications, depending on the type of investment
I am an Indian resident since 2008. Prior to that, I was a non-resident Indian (NRI), working in the UAE. In 2007, I had made an investment in the UAE, which is maturing soon. I wish to transfer the returns to my resident bank account in India. Do I have to make any declaration in my income tax returns (ITR) for this year? Once the amount is repatriated to India, what will be my tax liability?
—Name withheld on request
We are assuming that there shall not be any UAE personal tax liability upon the maturity of the investment.
Query 1: For the years you qualified as a resident and ordinarily resident (ROR) in India, there was in any case a requirement to disclose the said investment in the AL Schedule (if your taxable income exceeded R50 lakh) and Foreign Asset (FA) Schedule of your ITR, at cost, under the relevant heads. Also, there was a requirement to offer income thereon (interest, dividend and so on), if any, to tax in India. You would, accordingly, be required to disclose the investment details and income thereon in your ITR for FY20.
Query 2: As you qualify as an ROR for FY21, your global income is taxable in India. At the time of maturity there could be a potential tax implications, depending on the type of investment. Generally, if the investment is regarded as a capital asset, the capital gains from the transfer of the foreign investment shall be taxable, irrespective of whether or not the sale proceeds are transferred to your Indian bank account or not.
As you have been holding the investments since 2007, the gains shall be considered as long-term capital gains or losses (LTCG or LTCL).
LTCG or LTCL is first calculated in foreign currency, as the difference between the net sale consideration (actual sale consideration less brokerage and incidental expenses) and the indexed cost of acquisition (ICOA) and improvement. ICOA in your case would be calculated as the cost of acquisition or cost inflation index (CII) of the year of purchase multiplied by CII of the year of sale (CII for FY21 is 301). The gain, if any, shall be taxable at 20% plus surcharge and education cess. LTCG or LTCL so determined in foreign currency has to be converted into rupees using the telegraphic transfer (TT) buying rate issued by the State Bank of India, as on the last day of the month immediately preceding the month in which the property is sold. In case of an LTCG, you may explore roll-over exemptions towards prescribed reinvestments in India.
Any future income or investments from the repatriated proceeds will also be taxable.
Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India. Queries and views at email@example.com