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Do I have to pay tax on capital gains made outside India?

Filing returns are compulsory and sales proceeds to India

Question: My wife who is a resident of India had five years ago remitted funds under the liberalised remittance scheme to her foreign bank account. From such funds she has been purchasing shares in companies listed on the New York Stock Exchange. Some of the shares which were held for more than three years have been sold recently. Is she required to remit to India the sale proceeds earned by her in foreign exchange? Will she have to pay tax in India though the capital gains have been made in the United States?

ANSWER: It is mandatory for her to repatriate to India the entire sale proceeds of shares within 180 days of the sale being made. Remittance of funds after 180 days would be in breach of Reserve Bank of India’s guidelines. While remitting the funds to India, she will have to make a declaration giving the details of the shares which were sold. Proof of investment which was originally made five years ago will also have to be furnished. Likewise, documents pertaining to the sale, like broker’s sale note will have to be furnished. In case of shares which have been held for more than three years, they will be treated as long term capital assets and capital gains derived from sale of the shares will be liable to tax at the flat rate of 20%. If the sale has been made in the current financial year, she will have to pay advance tax on the capital gains by 31st March, 2024 and the capital gains will need to be disclosed in her tax return to be filed by 31st July, 2024 for the Assessment Year 2024-25.

Question: Filing of returns and other documents on the website of the Ministry of Corporate Affairs has become difficult due to many technical glitches. NRIs who are overseas directors of Indian companies are particularly finding it difficult to ensure statutory compliance. Are any measures being taken to rectify the situation?

ANSWER: Glitches on MCA-21 platform range from slow speed, problems in PDF generation and issues pertaining to downloads. Problems have been faced by users who have multiple IDs. These problems have arisen in respect of the third version (V3) of MCA-21. The Government has therefore pulled up the service provider and asked it to upgrade the system and rectify the problems faced by those who have to comply with the law. The service provider is working round the clock to resolve the problems faced by all stake holders. Due to this problem, MCA is allowing annual filings in V2 of MCA-21 until August 15, 2023. Option is also being given to use the income-tax portal for filing the documents and returns. Overseas directors of Indian companies are facing problems as they are unable to get the OTP via SMS. Therefore, MCA has provided the facility of OTP via WhatsApp. However, these are temporary measures which are being used until the technical glitches are eliminated.

Question: The revenue by way of Goods & Services Tax has been going up in India at a healthy rate for the past few months. Is this a result of the recovery of the Indian economy at a robust pace?

ANSWER: The Indian economy has been showing positive signs of recovery and internationally it is acknowledged that it is one of the fastest-growing economies in the world. This is reflected in the higher growth trends of both income-tax and GST collections. Further, the government has streamlined the process of GST registration to ensure that fake registrations are curbed. During the last two months, the government has identified by using artificial intelligence around 69,000 fake registrations, which were claiming benefits like input credit. To deal with this issue, rules have now been amended to make it mandatory for submission of bank account details within 30 days of obtaining GST registration. Entities which do not provide details of their bank account will have to suffer suspension of their registration. This suspension will be automatically revoked once the bank details are provided. Further, physical verification of business premises will be conducted expeditiously. The Enforcement Directorate is also sharing critical information with the GST network. The Financial Intelligence Unit will provide information on a timely basis to tax authorities which will reduce tax evasion and money laundering. All these measures are leading to buoyancy in tax revenues.

H. P. Ranina is a practising lawyer, specialising in tax and exchange management laws of India.