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Rashmin Sanghvi & Associates

Chartered Accountants

220, 2nd Floor, Arun Chambers,
Tardeo Road,
Mumbai - 400 034,
Maharashtra, India.

Tel. Nos.: (+91 22) 2351 1878, 2352 5694.

Fax : (+91 22) 2351 5275.

Email : [email protected]

Home Articles Taxation         Share :

Budget 2017Chapter C

17. Tax on Capital Gain on shares of a Private Company earned by a non-resident [S. 112(1)(c)(iii), Clause 43 of Finance Act 2012]:

17.1 Capital Gain earned by an NR on sale of shares are taxed slightly differently compared to Indian residents.

17.2 Finance Act 2012 provided that when an NR sells an unlisted security, it would be taxable at a concessional rate of 10%. The benefit of foreign exchange fluctuation and indexation would not be available. The definition of security will be as per Securities Contracts (Regulation) Act.

17.3 In the case of Dahiben Umedbhai Shah (57 CompCas 700) the H’ble Bombay High Court opined that definition of securities under SCRA refers to shares which can be sold in the market. In that sense, shares of a private company are not “marketable securities”. Therefore, it was held that shares of private companies are not securities as defined in Securities Contracts (Regulation) Act. As this was not the Government’s intention, an amendment was brought in vide Finance Act 2016 clarifying the position that the concessional rate was available for the shares of privately held companies also.

17.4 The amendment of Finance Act 2016 was applicable only from FY 2016-17 onwards. However, the rate of 10% on sale of private company’s shares was applicable from FY 2012-13 onwards. This would mean that the rate would not apply for the FYs 2012-13 to 2015-16. Therefore, Finance Bill 2017 now provides that the 10% rate of tax will be available from FY 2012-13 onwards.

17.5 Thus sale of shares of private companies will be taxable @ 10% without considering inflation adjustment or foreign exchange fluctuation adjustment from FY 2012-13 onwards.

17.6 If tax at higher rate has been paid, and there is a possibility of revising the returns, then the returns should be revised. Alternatively, if the matter is open in assessments or appeals, it can be taken up there.