Is there any limit for purchase of shares/convertible debentures by NRIs under the Portfolio Investment Scheme?
Yes. An NRI can purchase up to a maximum of 5% of the aggregate paid up capital of the company (equity as well as preference capital) or the aggregate paid up value of each series of convertible debentures as the case may be. For the purpose of this ceiling, investment under the Portfolio Investment Scheme on repatriation as well as non-repatriation basis will be clubbed together.
There is an overall ceiling of 10% of paid-up equity share capital of the company/paid-up value of each series of convertible debentures for purchase by all NRIs/OCBs put together.
The overall ceiling can be raised to 30% if the company concerned passes a special resolution to that effect in its general body meeting.
Shares/convertible debentures acquired through IPO/Private Placement are excluded for the purpose of above limits.
Who monitors these ceilings on the holdings by NRIs/OCBs? What is RBI's Restrict List/Watch List?
While limits of individual holdings by NRIs/OCBs are monitored by the respective designated bank branch, RBI monitors the holding limits by NRIs/OCBs in aggregate. Once the aggregate holding of NRIs/OCBs builds up/ about to build up to the maximum prescribed ceiling, RBI puts the concerned stock under the Restrict List/Watch List which is published by RBI from time to time.
What happens if an NRI purchases a stock in excess of the prescribed limit?
An NRI will have to immediately off load such portion of the holding, which is in excess of the prescribed limit.
Taxation of Capital Gains and TDS
What are the tax obligations applicable to NRIs?
Income on investments (capital gains) forming part of sales proceeds are subject to Capital Gains tax. The rate of tax depends upon the period of holding. Currently the tax rate applicable for short-term capital gains and long-term capital gains is 31.5% and 10.5% respectively. These tax rates are inclusive of 5% surcharge.
What is meant by 'long term capital gain' and 'short term capital gain'?
Capital assets can be either short-term or long term and so be the capital gains arising therefrom.
Short term capital gain: Any capital gain arising out of sell of shares/debentures held for a period not more than 12 months from the date of its acquisition shall be a short term capital gain.
Long term capital gain: Any capital gain arising out of sell of shares/debentures held for more than 12 months from the date of its acquisition shall be a long term capital gain.
The period of holding is defined as the period from the date of purchase to the date of sale.
For example if the sale transaction date is 15-06-2000, all those purchases, which are affected up to 15-06-1999, are eligible for long term capital gain tax. Purchase made on 16-06-1999 and thereafter will be subjected to short term capital gain tax.
How is amount of capital gain determined?
Capital gain is the calculated based on the difference between the net sale consideration (sell price less brokerage) and the cost of acquisition (purchase price plus brokerage) of the concerned holding. Value of holding is calculated on FIFO (First In First Out) basis.
What is 'Double Taxation Avoidance Treaty'?
India has entered into Double Taxation Avoidance Treaties with certain countries under which NRIs who are residing in any of these countries, are liable to pay income tax at the rate applicable in India or in the country where they are residing, which ever is lower.
How can NRIs take benefit of 'Double Tax Avoidance Treaty'?
To avail benefit of lower rates of tax as per double taxation avoidance treaty entered in by India, NRIs need to submit the Residency Certificate issued by Tax Authorities of the country of his residence. These documents should be submitted to the designated bank branch at the time of opening the bank account or subsequently. New TDS rate shall be applied only after the acceptance of the Residency Certificate by the designated bank.
If my income is covered under the provisions of 'Double Taxation Avoidance Treaty' and thereby attracts tax at confessional rate or NIL rate, Would you still deduct TDS on sale transaction?
Once the designated bank has recognised your account under 'Double Taxation Avoidance Treaty', TDS would also be deducted as per the applicable concessional/NIL rate as the case may be.
What is "Tax Deduction at Source (TDS)" on capital gains arising out of sale of holdings by NRIs?
As per Indian tax laws, all the capital gains arising out of sale transactions are subject to tax. In the case of NRIs, the capital gain arising out of sale transaction is subject to deduction of tax at source (TDS) i.e. at the time of crediting the sale proceeds to the respective NRE/NRO account by the concerned bank branch. Accordingly, the concerned bank shall determine the tax liability and tax will be deducted at source. The concerned bank, which has deducted tax at source, shall issue a certificate in this regard.
Is TDS deductible if the sale proceeds are credited to NRO Bank account?
No TDS is deductible if the sale proceeds are credited to NRO Bank account.
Can I square up my transaction in the same settlement?
As per the Regulations, NRI investors should take delivery of shares purchased and give delivery of shares sold which implies that for sell transaction you have to give delivery irrespective of the fact that the same shares have been bought by you in the same settlement cycle. For buy transaction, the stock would be credited to your demat account independently.
As long as your sell transaction is backed by actual holdings in your demat account and the buy transaction is validated against the trading limits available, you can do two independent buy and sell transactions in the same stock in the same settlement cycle.
Can loss from one transaction be set off against gain from another transaction while calculating TDS?
No. As per the terms of portfolio investment scheme, setting off of losses against gains in not permitted. Bank will calculate TDS, wherever applicable, on every sale transaction independently.
I am holding 100 shares of ABC. 75 shares have been allotted in IPO and remaining 25 shares have been purchased from secondary market. Can I sell entire 100 shares by placing one order for 100 shares?
No. You must place two orders for 75 shares and 25 shares. 75 shares acquired through IPO would be sold from your Non PINS account and 25 shares purchased through the secondary market would be sold from your PINS account.