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Tax implication if an NRI invests in shares of non listed company?

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Tax implication if an NRI invests in shares of non listed company?

Postby tipper » Wed May 08, 2013 9:57 am

While many Non-Resident Individuals (NRIs) are located out of India, they might be well aware about the long term growth story of India and the growth prospects of Indian equity markets. Even though they might be willing to benefit by investing a portion of their portfolio in Indian equities, it is highly unpractical for them to be an active investor in Indian equities. One of the hurdles they often face is the time difference, due to which they cannot actively track the developments in the Indian stock holdings in their portfolio, during market hours. Hence they look for a mode where someone sitting in India can do this activity for them, like portfolio management, or investing directly in an active portfolio. Yes there is a cost effective way by which many NRIs use to participate in Indian equity markets; and they do it through holding some of their investment in Indian mutual funds. Even you being an NRI may be taking this route in order to benefit from Indian equity markets in the long term.

Your mutual fund investments are subject to Tax

Before you make your investment in Indian mutual funds, being an NRI, you need to know that the gains that you make on your mutual fund investments are subject to tax. You need to be aware of what tax rate will be applicable on short term as well as long term capitals gains on your investment in equity and non-equity mutual funds?

TDS on your mutual fund investment

Applicable tax rate is a major confusion in the mind of the NRIs as the portfolio managers whom they transact with are supposed to charge TDS at the highest rate applicable even though the tax rate liability is less. Infact there may be a difference between applicable tax rate to an NRI and the TDS rate charged by the portfolio managers on NRI investments. To get back the additional tax deducted, NRIs need to file for an income tax refund. So when you get a tax deducted amount at the time you sell your investment in Indian mutual funds; you will have to file for a refund of your additional tax. For this you need to be aware of the actual tax rate that is applicable on your investments in Indian mutual funds.

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Tax implication if an NRI invests in shares of non listed company?

Postby winefrith » Wed May 08, 2013 9:59 am

Whether listed or unlisted,

Long-term capital gains (Final price minus original investment minus commissions) are tax-free (1 year and above) IF sold through recognized stock exchanges and paid security transaction tax (STT). They need not have to be listed but stock exchanges do mediate transactions.....

If you are investing in a private small community co-operative, the dividends are not taxable no matter short or long term, however, the capital gains on your investment are taxable IF the holdings are short term (Less than one year). The public companies hold the taxes before distributing the dividends and therefore not taxable, however, if you dont have a tax account in India, you may have to report your earnings, yet there is absolutely no tax on your dividend earnings.

Short-term capital gains are taxed at the concessional rate of 10-15%
Dividend is tax-free, however subject to a dividend distribution tax @15%
The capital is repatriable if the original investment was made through forex
remitted from abroad or through NRE accounts (if you need details on this part, you can further elaborate you question, I can make it to the point answer)

Despite of this, the country in which you are a resident now, will have different taxation policy. For Ex. US, you must disclose your investments/earnings from a foreign investment and no matter what other countries (of your choice of investment). If you are investing in UK or From UK, taxation is same whether you are a British citizen or foreigner to Britain which depends on the amount (tiers) with a minimum of 10%and upto 37%.

While in Australia, if your investments are after Dec 2006, any gains made from Australia are taxable and if an asset is held for at least 1 year then any gain is first discounted by 50% for individuals.

Many different countries have different tax laws that are complex.

Good luck, India has been tax heaven for Foreign investment for the last decade
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