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TDS on NRI Payment

natarajan (SM - Audit & Taxation) (156 Points)

14 June 2011

1. Non resident Indian having 20% holding in Indian Private company AND he is also a director.

2. Another director being Resident in India wants to acquire the NRI holding of 20% in Individual capacity?

Pls advice on the following lines:

Advice on Taxability ?

Whether this transaction deemed to accrue in India and taxable in India ?

Whether TDS to be deducted for this transaction ?

Whether 15 CA is mandatory ?

Thanks in advance

R.NATARAJAN

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(Guest)

NR selling shares of an Indian private limited Company to another resident.

1. It is an income which is deemed to accrue or arise in India. S 9(1)(i)

2. NR earns income by way of capital gain (loss).

3. Resident earns income from other sources if diff between Prescribed FMV and purchase price is more than 50,000.

4. Since NR earns indian income, its income is taxable in India therefore S 195 automatically becomes applicable TDS provisions are applicable.

5. SInce it is a private limited company rate of tax 20% + Ed cess.

6. Form NO 15A is mandatory

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natarajan (SM - Audit & Taxation) (156 Points)
Replied 16 June 2011

Dear sir,

Thanks for your immeidate reply.

Also like to know another point in line with the above query.

Since the acquisition of shares is in individual capacity, how to comply with TDS provision ?

The indian director doesnt have TAN so far?

(Guest)

There is one change in query about computation of capital gain and rates of tax.

For computation of capital gain apply First proviso to S 48.

Rates of tax 10% + ed cess (S 115C to 115I)

CA. Anuj Gupta (Practices in NRI Int.Tax FEMA TP FDI/FIPB & FCRA) (7014 Points)
Replied 09 September 2011

There is no requirement for form 15CA as per the provisions of sec 204(iia) which provides as under " in the case of any sum payable to a non-resident Indian, being any sum representing consideration for the transfer by him of any foreign exchange asset, which is not a short-term capital asset, the authorised dealer responsible for remitting such sum to the non-resident Indian or for crediting such sum to his Non-resident (External) Account maintained in accordance with the Foreign Exchange Regulation Act, 1973 (46 of 1973), and any rules made thereunder;]

So let us put section 204 (iia) in simple words:

in the case of any sum payable to a non-resident Indian,
being any sum representing consideration for the transfer by him of any foreign exchange asset(means shares which have been acquired or purchased with, or subscribed to in, convertible foreign exchange;)
which is not a short-term capital asset,
the authorised dealer responsible for remitting such sum to the non-resident Indian or for crediting such sum to his Non-resident (External) Account shall be person responsible for deducting TDS .

Also the NRI can also consider using the provisons of sec. 115F to escape tax liabillity .

There are certain Pricing & other REPORTING guidelines to be followed under FEMA.

Anuj

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