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Section 48- Capital Gains Computation for Non-resident

Last Update Date : April 30, 2018

Non-resident Indians can avail many benefits as per the provisions of Income Tax Act. Section 48 of the Income Tax Act describes the provisions related to capital gains. This guide explains the same in a detailed manner.

section 48 of the income tax act

Meaning of Section 48

Section 48 of the Income Tax Act can into existence on 1st April, 1993.It lays down provision for calculating capital gains from Non-resident Indians. This section states that all non-residents are entitled to the protection from fluctuation of rupee value against foreign currency in respect of capital gains on shares in or debentures of Indian Companies. It even specifies the manner of computation of capital gains and the benefits available for non-residents.

Note: The provision of section 48 apply only when the Capital Asset is a Share or Debenture.

Scope of Section 48

Section 48 of the Act provides that:

  • The income chargeable under the head ‘capital gains’ shall be computed by deducting the “cost of improvement ,” “cost of acquisition of the capital asset” if any and also “ the expenditure incurred wholly and exclusively in connection with that transfer” from the full value of the consideration received or accrued.
  • This section is applicable only for the Non-residents
  • Under this provisions, in some cases, Capital gain is calculated in foreign currencies.

How to avail the benefit of Section 48?

In order to avail the benefit prescribed under this section, you need to fulfil the following conditions:

  • Condition 1: The taxpayer must be non-resident (maybe an Indian or foreign citizen, or a corporate-assessee or a non-corporate assessee).
  • Condition 2: He should acquire shares, (or debentures of) Indian company (may be public limited or private limited) by utilising foreign currency.
  • Condition 3: The asset may be short-term or long-term.

How to Compute Capital Gains under Section 48?

Once aforesaid conditions are satisfied, then the capital gains can be computed as per the below described procedure:

Computation of Short-Term Capital Gains. Computation of Long-Term Capital Gains.
1.      Find out full value of consideration

Ø   Deduct the following:

(a) expenditure incurred wholly and     exclusively in connection with such transfer
(b) Cost of acquisition
(c) Cost of improvement

2. From the resulting sum deduct the exemption provided by if any (Sec. 54, 54B, 54D, 54EC, 54G, and 54 GA.)

The balancing amount is Short-Term Capital Gain.

 

1.      Find out full value of consideration

Ø   Deduct the following:

(a) expenditure incurred wholly and     exclusively in connection with such transfer
(b) Cost of acquisition
(c) Cost of improvement

2. From the resulting sum deduct the exemption provided by if any (Sec. 54, 54B, 54D, 54EC, 54G, and 54 GA.)

The balancing amount is Long -Term Capital Gain.

Note: Capital gain shall be computed in the same foreign currency which was initially utilised for acquiring shares or debentures.

Note:

  • Capital gain shall be computed in the same foreign currency which was initially utilised for acquiring shares or debentures.
  • Capital Gain so calculated in the foreign currency shall be reconverted into Indian currency. But the benefit of indexation shall not be available thereof.
  • The aforesaid manner of computation of capital gain is even applicable in respect of capital gain accruing or arising from every re-investment thereafter in sales of shares/debentures of Indian Company.
  • No deduction will be allowed in respect of payments of Securities Transaction Tax (STT) in computing income under the head “Capital Gain”.

Frequently Asked Questions

What incomes are charged to tax under the head “Capital Gains”?

Any profit or gain arising from transfer of a capital asset during the year is charged to tax under the head “Capital Gains”.

Is the benefit of indexation available while computing capital gain arising on transfer of short-term capital asset?

The benefit of indexation is available only in case of long-term capital assets and is not available in case of short-term capital assets.

What is the meaning of indexation?

Indexation is a process by which the cost of acquisition/improvement of a capital asset is adjusted against inflationary rise in the value of asset.

Is NRI allowed to buy agricultural property or farm house in India?

NRIs and persons of Indian origin are not allowed to buy agricultural property, plantation or a farm house.

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