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| Last time, we examined the tax rules on capital gains applicable to NRIs. There is yet another special system of taxation that NRIs/PIOs can opt for if they so desire.
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| These are Special Provisions of Chapter XIIA, which lists concessional rates of tax if investments are made in certain specified assets.
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| Special provisions of chapter XIIA
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| Chapter XIIA encompassing Sections 115C to 115I is yet another advantage offered to NRIs to structure their taxes. NRIs have the option of being assessed under the provisions of Chapter XIIA or under the abovementioned general provisions of the act.
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| Under the special provisions, investment income like interest, dividends etc. and long-term capital gain arising from a specified asset will be charged to income-tax at a concessional rate of 20 per cent and 10 per cent respectively.
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| The conditions to qualify for special provisions are as under:
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Available to NRI/PIO only
Only available on the investment income and the long-term capital gains from specified assets. Specified assets mean any of the following assets:
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Shares of Indian company.
Debentures of Indian Public Limited Company (PLC)
Securities of Central Government.
Deposits with an Indian PLC.
In computing investment income, no deductions under Chapter VIA (80CCC to 80U) or any expenditure would be allowed.
In the case of long-term capital gains, neither indexation nor the deductions from 80CCC to 80U are allowed.
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| Tax exemption
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| If within six months from the date of transfer, the NRI invests the entire net consideration in any of the specified assets mentioned above, then the capital gains will be exempt from tax. If part of the consideration is invested, a proportionate deduction will be allowed.
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| However, there is a three year lock-in on the new asset acquired. In case this new asset is transferred within that period, the exempted capital gains would be brought to tax as income by way of long-term capital gains of the year in which the new asset is transferred.
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| Filing tax return
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| It is not necessary for a non-resident Indian to furnish a return of his income if his total income in respect of which he is assessable during the year, consists only of investment income or income by way of long-term capital gains or both, and tax deductible at source has been correctly deducted from such income.
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| Continuation even after becoming a resident
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| When a non-resident becomes assessable as a resident, he can furnish a declaration with his return that the special provisions should continue to apply with regards to investment income from the debentures, deposits and Central Government securities.
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| The provisions will apply till such time that the assets are eventually transferred. However, income from shares is not covered.
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| Exemptions from Long-Term Capital Gains tax
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| For long-term capital gains assessable to tax under the general provisions (apart from Chapter XIIA), the act offers certain exemptions. They are as under:
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Section 54EC offers exemption of long-term capital gains on all assets, if the LT gains are invested in bonds of NABARD, NHAI or Rural Electrification Corporation with a lock-in of three years within six months from the date of sale of the original asset.
Section 54ED offers similar exemption if the LT gains arising from listed securities and units of UTI/MFs, are reinvested in eligible IPOs. The lock-in is one year.
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| In the above cases, if the new assets are transferred or encashed before the respective lock-ins, the amount of capital gain saved shall be deemed to be the income chargeable to long-term capital gains tax during the year when the new asset is liquidated.
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Losses cannot be set-off against income under any head other than
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