abhishreshthaa
Abhijeet S
HERE ARE SOME ISSUE RELATED TO TAXATION IN DRs
TAXATION ISSUES
TAXATION ISSUES
- Under the provisions s/115(AC) of the Income Tax Act, 1961, the dividends received on the underlying shares of the DRs shall be taxed @ 10%
- The company issuing the dividends shall transfer the dividend payments to the Overseas Depositary Bank (ODB) after TDS.
- The ODB, when it receives such payment of dividends (after taxation) shall distribute them to the Non-Resident Investors in proportion of their holdings of DRs
- The Non-Resident Investors may take credit of the TDS on the basis of certification by the ODB, if permitted in their country of residence.
- All transactions of DRs outside India among Non-Resident Investors, will be free from any liability to Income Tax in India, or Capital Gains therefrom.
- If any capital Gains arise on the transfer of the shares in India (redeemed after cancellation of DRs) in India, then the Non-Resident Investor will be liable under the provisions of the Indian Income Tax Act,1961.
- If the shares are held by the Non-Resident Investor for a period of more than 12 months (from the date of redemption advice by the ODB), & the Capital Gains arising on the sale thereof will be treated as LTCG & will be taxed @10 % u/s 115AC.
- If such shares are held for a period of less than 12 months than, the Capital Gains arising thereof will be treated as STCG & will be taxed at normal rates as applicable to Non-Resident Investors.
- But for computing Capital Gains (LTCG or STCG), we have to know the Cost of Acquisition, which is still a question.
- During the period, (if any), when the Non-Resident Investor holds the underlying shares of the DRs which he had purchased in foreign exchange, if the company issues dividends, then the dividends shall be charges to tax @ 10% in accordance with s/115AC(1).
- If the redeemed shares are sold on the Stock Exchanges registered in India, against payment in INR, then these shares shall will not be in the purview of s/115(AC), & the concessional tax treatment will be disallowed.
- Normal tax rates would apply to income arising or accruing on these shares.
- During the period of Fiduciary ownership of share with the ODB, the provisions of Avoidance of Double Taxation Agreement entered into by the GOI with the country of the residence of the ODB, shall be applicable.
- The holding of the DRs by the Non-Resident Investor & the holding of the underlying shares by the ODB in a fiduciary capacity, & transfer of DRs between the Non-Resident Investor & ODB shall be exempt from the provisions of Wealth Tax & Gift Tax.