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Taxation On Foreign Equity


VFN Team - May 25, 2018 - 0 comments

Taxation On Foreign Equity

As per the FEMA Scheme, individuals of India are allowed to remit up to Rs.90 lacs in each financial year transactions of permitted current or capital account.

Generally, income from foreign investments is liable to tax in India. In case of non-residents, when income is not directly received in India than it is not liable to tax.

The taxability is dependent on the period of holding the foreign asset:-

Long term capital asset:-

  • In case of shares of a foreign company- The period of holding is above 12 months
  • In case of other foreign securities and immovable property- The period of holding is above 24 months.

Short Term Capital Gain:-

It shall be taxable at 30%

Long Term Capital Gain: –

It shall be taxable @ 20%

Tax deduction on investment:

As per IT Act, u/s 80 C and 80 CCF, an individual investor will get   Rs.1,00,000 and Rs.20,000 deduction respectively In case of specific tax saving schemes. However in case of foreign investment, an individual will not get any specific tax benefits.

Two types of income tax can be applicable on holding of foreign equity by an individual in order to have a capital gain or to earn from those shares. These two types of income are as follows

  1. Income received through capital gain

If an individual transfer their holding shares to generate income then it will come under capital gain of IT act. According to Section 45 of the Act, any profits or gains arising from the transfer of the capital asset effected in the previous year shall be chargeable to income-tax under the head. Capital gain can be:

  1. Short term capital gain
  2. Long term capital gain
  1. Income through Dividend received on shares

According to section 10(34) states that income received by dividend from an Indian company is not taxable under the Act. But, income received by way of dividend on shares of a foreign company is taxable. Thus an individual is liable to pay tax on dividend received on owning from equity. This income can be shown under head “income from other sources”.

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