Personal Finance

Your Taxes

Sudhakar Sethuraman | Updated on July 12, 2020 Published on July 12, 2020

A friend (an NRI) and I (a resident Indian) are planning to start investments in equities through a bank stock broker. What taxes will be applicable for the same? Can you explain with respect to income-tax laws, foreign remittance and other applicable laws?

Jacob Abraham

Our response below is only based on the Income Tax Act, 1961, and the Foreign Exchange Management Act (FEMA), 1999 (to the extent it relates to foreign remittance). We have not analysed the applicability of regulations relating to investment in equity scrips by NRIs in India.

Income Tax Act: Sale proceeds from shares held as stock in trade (trading) shall be taxable as business income (BI), while the proceeds from shares held as investment (capital asset) shall be taxable as capital gains (CG).

BI shall be taxable based on the tax slab rates applicable to you and to your friend if you are doing business in your individual capacity. However, long-term CG in excess of ₹1 lakh from sale of listed shares are chargeable to tax at the rate of 10 per cent. Short-term CG (STT (Securities Transaction Tax) paid) shall be taxable at the rate of 15 per cent. In addition to this, surcharge (if applicable) and health and education cess at 4 per cent shall apply.

Further, it may be noted that effective from FY2020-21 (April 1, 2020, to March 31, 2021) dividend distribution tax has been abolished. Consequently, dividend income from shares are taxable in the hands of the shareholders at the applicable tax slab rates.

Foreign remittance of sale proceeds: As per FEMA, the sale proceeds (net of taxes) of the capital instruments could be remitted outside India. NRIs can remit up to $1 million per financial year (including all other capital account remittances) from an NRO account upon submission of a certificate from a chartered accountant and a self-undertaking to the banker. Prior RBI approval is necessary if the remittance exceeds $1 million in a financial year.

Is it necessary to show bank accounts with non-taxable income in the income-tax return?

TG Venkateswaran

As per the instructions issued by the tax authorities, the details of all savings/current accounts held at any time in India during a tax year are required to be reported in the income tax return. This is regardless of the bank account not earning any taxable income.

However, it is not mandatory to provide details of dormant accounts held in India which are not operational for more than three years. Reporting of bank accounts held abroad is also mandatory for those who qualify as tax residents (resident and ordinarily resident) of India, regardless of whether the account earns any income during the year.

The writer is Partner, Deloitte India. Send your queries to taxtalk@thehindu.co.in

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

Published on July 12, 2020
This article is closed for comments.
Please Email the Editor