Interesting questions on India-US Cap. Gains
Hi all,
First of, my sincere apprciation for the detailed and patient advice being offered by the various posters on this newsgroup. I have not seen this type of quality of discussion in most other forums.
I have been wrestling with India-US capital gains tax questions for the last several weeks. I am a returned NRI (6 yrs ago, non-GC holder) and currently file India returns. Per the treaty, I need to show my US savings interest and US capital gains as well on this India return. The questions are
1. Per the current rules, shares traded on Indian exchanges have 10% tax for short term gains and 0% for long term (and both have the STT as we know). Does this apply to my US share trades (Schwab or other e-broking account) as well? If not, what are the tax rates I should apply to my US shares when reporting them in my India tax return -- for long term and short term cap. gains?
2. I had long term capital losses in India as well as US over last several years, all from share trades. I forgot to report them in my respective India or US returns. This year, I wanted to report them (i.e. "carry them over", as they are still within the 7 years carry forward limit) in the India tax return and set them off against my short term cap. gains. The Indian CA tells me that "If you forgot to DECLARE them in the right year's return, you CANNOT report and use them in a subsequent year". Is this true? Have I lost the right the set them off, for good?
3. In case of a demerger or spinoff, what is the date of acquisition of shares for a new demerged unit, per Indian tax laws? Is it the date when you bought the original entity's shares or when you got the demerged unit's shares?
4. In case of a demerger or spinoff, what is the cost of acquisition of shares for a new demerged unit, per Indian tax laws? Is it zero or should we use a % of original entity's share acquisition cost, if such a % has been officially communicated by the company? e.g. In case of the Reliance demerger a table was sent by the company showing %s to be allocated to each of the demerged units.
I have had no other cap. gains except share trades so far.
Thanks a ton!
Interesting questions on India-US Cap. Gains
-
quantumleap
- Posts: 131
- Joined: Tue Jan 23, 2007 4:11 pm
-
quantumleap
- Posts: 131
- Joined: Tue Jan 23, 2007 4:11 pm
Interesting questions on India-US Cap. Gains
1. Per the current rules, shares traded on Indian exchanges have 10% tax for short term gains and 0% for long term (and both have the STT as we know). Does this apply to my US share trades (Schwab or other e-broking account) as well? If not, what are the tax rates I should apply to my US shares when reporting them in my India tax return -- for long term and short term cap. gains?
India Tax: Assumption is that you are ROR. Holding period for US stocks (as opposed to mutual fund units) to qualify as long term cap asset is 1 year.
LTCG will be taxed at 20% after allowing for inflation indexation of cost basis. STCG will be taxed at ordinary income tax slab rates.
First compute cap gain in $ and then convert the at the exchange rate that prevailed on the date of sale.
2. I had long term capital losses in India as well as US over last several years, all from share trades. I forgot to report them in my respective India or US returns. This year, I wanted to report them (i.e. "carry them over", as they are still within the 7 years carry forward limit) in the India tax return and set them off against my short term cap. gains. The Indian CA tells me that "If you forgot to DECLARE them in the right year's return, you CANNOT report and use them in a subsequent year". Is this true? Have I lost the right the set them off, for good?
I believe your CA is right. You can file an amended return, but I beleive the last date for filing such amended return is 1 year from the date the original return was due. So you may be able to carry forward at most cap losses that occured a year ago by filing an amended return. Caveat: Am not sure.
3. In case of a demerger or spinoff, what is the date of acquisition of shares for a new demerged unit, per Indian tax laws? Is it the date when you bought the original entity's shares or when you got the demerged unit's shares?
Date you bought the original entity's shares is the date of acquisition.
4. In case of a demerger or spinoff, what is the cost of acquisition of shares for a new demerged unit, per Indian tax laws? Is it zero or should we use a % of original entity's share acquisition cost, if such a % has been officially communicated by the company.
Assume it is Indian company. Acquisition cost of the new unit is not zero. The calculation involves use of net book values. The company would have communicated the percentages to be used.
India Tax: Assumption is that you are ROR. Holding period for US stocks (as opposed to mutual fund units) to qualify as long term cap asset is 1 year.
LTCG will be taxed at 20% after allowing for inflation indexation of cost basis. STCG will be taxed at ordinary income tax slab rates.
First compute cap gain in $ and then convert the at the exchange rate that prevailed on the date of sale.
2. I had long term capital losses in India as well as US over last several years, all from share trades. I forgot to report them in my respective India or US returns. This year, I wanted to report them (i.e. "carry them over", as they are still within the 7 years carry forward limit) in the India tax return and set them off against my short term cap. gains. The Indian CA tells me that "If you forgot to DECLARE them in the right year's return, you CANNOT report and use them in a subsequent year". Is this true? Have I lost the right the set them off, for good?
I believe your CA is right. You can file an amended return, but I beleive the last date for filing such amended return is 1 year from the date the original return was due. So you may be able to carry forward at most cap losses that occured a year ago by filing an amended return. Caveat: Am not sure.
3. In case of a demerger or spinoff, what is the date of acquisition of shares for a new demerged unit, per Indian tax laws? Is it the date when you bought the original entity's shares or when you got the demerged unit's shares?
Date you bought the original entity's shares is the date of acquisition.
4. In case of a demerger or spinoff, what is the cost of acquisition of shares for a new demerged unit, per Indian tax laws? Is it zero or should we use a % of original entity's share acquisition cost, if such a % has been officially communicated by the company.
Assume it is Indian company. Acquisition cost of the new unit is not zero. The calculation involves use of net book values. The company would have communicated the percentages to be used.
-
quantumleap
- Posts: 131
- Joined: Tue Jan 23, 2007 4:11 pm
Interesting questions on India-US Cap. Gains
# 1
Que:2
You can not set off the same even if you file amended belated returns .You can not set off carried forward long term capital loss against short term capital gains .
Sections 70 and 74 of the Income-Tax Act provide for set off and carry forward of losses under the head capital gains in the following manner:
S hort term capital loss may be set off against short term or long term capital gain and the balance if any be carried forward and set off against either short term or long term capital gain within 8 assessment years immediately succeeding the assessment year in which the loss was first computed.
However Long term capital loss may be set off only against a long term capital gain and the balance, if any, be carried forward and set off against
a long term capital gain within 8 assessment years immediately succeeding the assessment year in which the loss was first computed.
Que:2
You can not set off the same even if you file amended belated returns .You can not set off carried forward long term capital loss against short term capital gains .
Sections 70 and 74 of the Income-Tax Act provide for set off and carry forward of losses under the head capital gains in the following manner:
However Long term capital loss may be set off only against a long term capital gain and the balance, if any, be carried forward and set off against
a long term capital gain within 8 assessment years immediately succeeding the assessment year in which the loss was first computed.
-
quantumleap
- Posts: 131
- Joined: Tue Jan 23, 2007 4:11 pm
Interesting questions on India-US Cap. Gains
#1:
#3 is right. All I read was cap losses and gains when I responded in #2 and noticed only after #3 that you are seeking to adjust LTCL against STCG.
#3 is right. All I read was cap losses and gains when I responded in #2 and noticed only after #3 that you are seeking to adjust LTCL against STCG.
-
quantumleap
- Posts: 131
- Joined: Tue Jan 23, 2007 4:11 pm
Interesting questions on India-US Cap. Gains
# 1
que 3 & 4 : covering coa/ doa for bonus(though not covered in your ques) and demerger in little detail .
Tax implication on demerger:In the first phase, the existing shareholders of original company will get X shares each of the new company/ies for every share already held in the original company on the record date. This will not entail any additional
expenditure as the shares will be issued free of cost. There will not be any tax impact when the new shares are given to investors and so no question of any tax to be paid at this stage. There will be no transfer when the new shares are allotted to shareholders .The issue of a gain or a loss would arise only when the investor sells
either the original shares or the new shares allotted to them.
The next issue would be determining whether any sale undertaken qualifies
for a STCG/L or LTCG/L. The key component here is the holding period of the shares. If the shares are held for a period of less than a year, investors will be faced with a short-term capital gain or loss following a sale; longer than a year will
attract a long-term capital gain or loss. Before determining this, one has to clearly understand a major point that will make all the difference to the final taxation on any gain.
There is a subtle difference between bonus and demerger here .In case of bonus , cost of the bonus share is considered to be nil.In case of demerger there will be a proportionate price that will be the cost of the additional shares in the new companies that investors will get. Secondly the cost of the original shares remain the same in the case of a bonus issue but in case of demerger the cost will reduce correspondingly to that of the other entities carved out of the original company.
The holding period in a bonus issue begins from the date of issue of the shares but in the case of a demerger it begins from the holding date of the original company shares. So in your case the holding period of the new shares will be
considered as the date you purchased the original shares.
Notional cost of acquisition of such demerged shares will be calculated thus: cost of acquisition of shares in demerged company into the net book value of assets transferred/net worth of the demerged company before the demerger.
que 3 & 4 : covering coa/ doa for bonus(though not covered in your ques) and demerger in little detail .
Tax implication on demerger:In the first phase, the existing shareholders of original company will get X shares each of the new company/ies for every share already held in the original company on the record date. This will not entail any additional
expenditure as the shares will be issued free of cost. There will not be any tax impact when the new shares are given to investors and so no question of any tax to be paid at this stage. There will be no transfer when the new shares are allotted to shareholders .The issue of a gain or a loss would arise only when the investor sells
either the original shares or the new shares allotted to them.
The next issue would be determining whether any sale undertaken qualifies
for a STCG/L or LTCG/L. The key component here is the holding period of the shares. If the shares are held for a period of less than a year, investors will be faced with a short-term capital gain or loss following a sale; longer than a year will
attract a long-term capital gain or loss. Before determining this, one has to clearly understand a major point that will make all the difference to the final taxation on any gain.
There is a subtle difference between bonus and demerger here .In case of bonus , cost of the bonus share is considered to be nil.In case of demerger there will be a proportionate price that will be the cost of the additional shares in the new companies that investors will get. Secondly the cost of the original shares remain the same in the case of a bonus issue but in case of demerger the cost will reduce correspondingly to that of the other entities carved out of the original company.
The holding period in a bonus issue begins from the date of issue of the shares but in the case of a demerger it begins from the holding date of the original company shares. So in your case the holding period of the new shares will be
considered as the date you purchased the original shares.
Notional cost of acquisition of such demerged shares will be calculated thus: cost of acquisition of shares in demerged company into the net book value of assets transferred/net worth of the demerged company before the demerger.
-
quantumleap
- Posts: 131
- Joined: Tue Jan 23, 2007 4:11 pm
Interesting questions on India-US Cap. Gains
What if you are still a RNOR?
-
quantumleap
- Posts: 131
- Joined: Tue Jan 23, 2007 4:11 pm
Interesting questions on India-US Cap. Gains
Hello all, Thanks so much for the prompt and detailed replies. Just summarzing my understanding below, followed by a couple more questions.
India STCG with STT on Indian Tax Return @ 10%
India STCG without STT on Indian Tax Return @ 30%
India LTCG with STT on Indian Tax Return @ 0%
India LTCG without STT on Indian Tax Return @ 20% with indexation (I believe, we can take 10% if computing flat WITHOUT indexation, am I right?)
US STCG (any) on Indian Tax Return @ 30%
US LTCG (any) on Indian Tax Return @ 20% with indexation or 10% without indexation
LTCL not declared in the earlier year's India tax returns cannot be setoff in subsequent years, you have basically lost the ability ot set it off.
LTCL can be setoff only against LTCG of this year of LTCL of subsequent years if you are properly carrying it forward
Hope my above understanding is correct. Please let me know if you see any problems.
Another question: If I had shares of an unlisted Indian company (say bought in Year1 for cost of Rs. 10000 total), which subsequently got taken over by a foreign unlisted company (say in Year4) in exchange of part foreign shares (value obviously unknown) and part cash (say Rs. 15000) how does one go about treating tax payable in India tax return? This will be LTCG, though how to compute it? Is it correct to assume that the new shares, whose value cannot be determined, will not attract any cap. gains tax right now, but one will have to pay LTCL at 10% (or 20% with indexation) on the cash component (ie Rs. 15000 - Rs. 10000)?
Also if the acquiring company has provided a notional current value of its shares in writing, does one have to pay LTCG on the difference between the shares' value of today, plus the cash component, minus the cost of acquiring the shares? BTW the Indian co. shares were acquired in the form of employee stock options which vested and became shares.
Thanks!
India STCG with STT on Indian Tax Return @ 10%
India STCG without STT on Indian Tax Return @ 30%
India LTCG with STT on Indian Tax Return @ 0%
India LTCG without STT on Indian Tax Return @ 20% with indexation (I believe, we can take 10% if computing flat WITHOUT indexation, am I right?)
US STCG (any) on Indian Tax Return @ 30%
US LTCG (any) on Indian Tax Return @ 20% with indexation or 10% without indexation
LTCL not declared in the earlier year's India tax returns cannot be setoff in subsequent years, you have basically lost the ability ot set it off.
LTCL can be setoff only against LTCG of this year of LTCL of subsequent years if you are properly carrying it forward
Hope my above understanding is correct. Please let me know if you see any problems.
Another question: If I had shares of an unlisted Indian company (say bought in Year1 for cost of Rs. 10000 total), which subsequently got taken over by a foreign unlisted company (say in Year4) in exchange of part foreign shares (value obviously unknown) and part cash (say Rs. 15000) how does one go about treating tax payable in India tax return? This will be LTCG, though how to compute it? Is it correct to assume that the new shares, whose value cannot be determined, will not attract any cap. gains tax right now, but one will have to pay LTCL at 10% (or 20% with indexation) on the cash component (ie Rs. 15000 - Rs. 10000)?
Also if the acquiring company has provided a notional current value of its shares in writing, does one have to pay LTCG on the difference between the shares' value of today, plus the cash component, minus the cost of acquiring the shares? BTW the Indian co. shares were acquired in the form of employee stock options which vested and became shares.
Thanks!
-
quantumleap
- Posts: 131
- Joined: Tue Jan 23, 2007 4:11 pm
Interesting questions on India-US Cap. Gains
India LTCG without STT on Indian Tax Return @ 20% with indexation (I believe, we can take 10% if computing flat WITHOUT indexation, am I right?)
That 10% LTCG tax rate without inflation indexation is an option only some specified long term capital assets - listed securities, units and zero cooupon bonds -not for all long term capital assets.
US LTCG (any) on Indian Tax Return @ 20% with indexation or 10% without indexation.
US stocks are not in the list of specified long term cap assets that are eligible for the 10% LTCG rate without indexation.
Another question: If I had shares of an unlisted Indian company (say bought in Year1 for cost of Rs. 10000 total), which subsequently got taken over by a foreign unlisted company (say in Year4) in exchange of part foreign shares (value obviously unknown) and part cash (say Rs. 15000) how does one go about treating tax payable in India tax return?
Looks like the foreign firm gave you 10K cash and some of its shares in lieu of your shares in the Indian firm. If so, the transaction looks like a transfer that would be a taxable event. The capital gain computation would involve, as a first step, computing full value of consideration received for the shares that you gave up. The full value of consideration would be 10K cash plus an assessed value for the shares of the foreign firm that you received. I dont know how this assessed value is arrived at.
That 10% LTCG tax rate without inflation indexation is an option only some specified long term capital assets - listed securities, units and zero cooupon bonds -not for all long term capital assets.
US LTCG (any) on Indian Tax Return @ 20% with indexation or 10% without indexation.
US stocks are not in the list of specified long term cap assets that are eligible for the 10% LTCG rate without indexation.
Another question: If I had shares of an unlisted Indian company (say bought in Year1 for cost of Rs. 10000 total), which subsequently got taken over by a foreign unlisted company (say in Year4) in exchange of part foreign shares (value obviously unknown) and part cash (say Rs. 15000) how does one go about treating tax payable in India tax return?
Looks like the foreign firm gave you 10K cash and some of its shares in lieu of your shares in the Indian firm. If so, the transaction looks like a transfer that would be a taxable event. The capital gain computation would involve, as a first step, computing full value of consideration received for the shares that you gave up. The full value of consideration would be 10K cash plus an assessed value for the shares of the foreign firm that you received. I dont know how this assessed value is arrived at.
-
quantumleap
- Posts: 131
- Joined: Tue Jan 23, 2007 4:11 pm
Interesting questions on India-US Cap. Gains
Yp12271:
I am planning to R2I (non-GC) over the next year. It is encouraging to see you have been able to manage your US brokerage account from India for so long. I had a couple of questions:
a) How do you (or plan to) to withdraw money from your US account? Do you have them mail checks to you or get it wired to your India account?
b) How do you file US taxes from India? I assume you file 1040NR? Do you do it by mailing in the paperwork or is there online tax services that can be used?
Appreciate the answers
I am planning to R2I (non-GC) over the next year. It is encouraging to see you have been able to manage your US brokerage account from India for so long. I had a couple of questions:
a) How do you (or plan to) to withdraw money from your US account? Do you have them mail checks to you or get it wired to your India account?
b) How do you file US taxes from India? I assume you file 1040NR? Do you do it by mailing in the paperwork or is there online tax services that can be used?
Appreciate the answers
-
quantumleap
- Posts: 131
- Joined: Tue Jan 23, 2007 4:11 pm