FEMA Regulations for various scenarios

Summary of regulations , modes of investment  and Valuations are tabulated in Appendix – 1

Income Tax Act, 1961

Capital Gains:

Being a Resident Indian, foreign source of Income will also be taxable in India. Taxability of Resident Indian, who has invested in Foreign Equities are as follows:

S.NoCategory of IncomeForeign Equity (Listed and Unlisted)
1Investment IncomeSlab Rate
2Long Term Capital Gain20%
3Short term Capital GainSlab Rate

Long Term/Short Term Capital gain for Foreign Listed/Unlisted Equity will be determined based upon the period of holding of asset as mentioned in below table:

S.NoCategoryPeriod of Holding for Foreign Equity
1Long Term Capital Asset>24 Months
2Short term Capital Asset<24 Months

As per Income Tax Act, in order to be a listed Equity, it has to be listed in recognised Stock Exchanges in India. Any Listed Foreign Equity will be treated at par with Unlisted Equity in India.

Set – Off Losses:

As per the Income Tax provisions, Resident Individuals are allowed to set off Long Term losses arising out of Foreign Equity against Long Term Gains arising out of Indian Securities. As per the provisions, Loss from Capital gains are not allowed to be set off against any other Source of Income.

  • Long Term Capital loss can be set off against Long Term capital Gains only
  • Short Term Capital Loss can be Set off against Short Term gains and Long Term Capital Gains

Carry Forward of Losses:

  • Can be carried forward up to next 8 assessment years from the year in which losses are incurred.
  • Losses cannot be carried forward if return is not filed within due date
  • Same rule of set off will be applied in subsequent years as well

Gifting of Foreign Shares:

Income Tax Act,1961 sought to levy tax on gifts in the hands of recipient under gifting section 56. 

  • Gift received from relative is not taxable
  • Gift received from any other person, exceeding prescribed limit will be taxable in India.

Foreign Shares received as gift by a Resident Individual without any consideration where aggregate Fair Market Value exceeds INR 50,000 will be subject to tax in India. The Individual is also required to disclose the details of gifts received during the year in their Income Tax Return.

Foreign Tax Credit:

Any Income/Gains earned out of foreign equity is liable to tax as per the respective country’ taxation law. Resident Individual can claim tax credit for any such tax deducted outside India, by filing a online Form 67 on or before filing tax return in India. Credit shall be available to the extent of lower of the following:

  • Tax payable as per Income Tax Act
  • Foreign Taxes paid

For the purpose of above, Foreign Tax paid excludes any excess amount of tax paid over and above the rate mentioned in DTAA Agreement.

Pages: 1 2 3 4 5 6 7

Recommended Posts