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January 28, 2022

All about capital gain on sale of foreign shares

by Mahesh Mara in Income Tax

All about capital gain on sale of foreign shares

Any Assets movable or immovable when you sold, you are liable to pay capital gains on it. For example when you sale your shares holding or house property you need to calculate the profit on sale, apply indexation and calculate actual taxable gains. An income tax return (ITR) is basically a document that is filed as per the provisions of the Income Tax Act, reporting one’s income, profits and losses and other deductions as well as details about tax refund or tax liability. The process of filing income tax return (ITR) can become quite complex if you do not understand the implications of what you are filling in the form. One such issue arises on how one is supposed to show transaction related to sale of foreign equity shares.

What is the period of holding in case of Foreign Shares?

When the stock is held for more than 24 months then the gains on the sale of the stock are long term capital gains and when the stocks are held for a period less than 24 months then the gains on the sale of the stock is short term capital gains.

What is the rate of tax on capital gains in case of sale of Foreign Shares?

When the stock is held for more than 24 months then the gains on the sale of the stock are long term capital gains and will be taxed at 20% + applicable surcharge and fees and When the stocks are held for a period less than 24 months then the gains on the sale of the stock is short term capital gains and will be a part of the current income and will be taxed as per slab rates applicable to the investor.

The above details can be summarized as follows:

ParticularLong Term Capital GainShort Term Capital Gain
Period of HoldingMore than 24 MonthsLess than 24 Months
Rate of Tax20%Slab Rates

Note:

1. Foreign exchange gain or loss shall be ignored while calculating the capital gain on sale of foreign shares

For Instance

Mr X has bought shares 100 of XYZ INC on 1st Jan 2019 for $78 per share and sold the Shares on 7th June 2021 for $96 per Share

Assume Rate of Exchange assume Rs. 75/ dollar

 ParticularAmount
Full value of Consideration7,20,000
(100*96$*Rs.75)
Less:Purchase Price5,85,000
(100*78$*Rs.75)
LTCG1,35,000
 Tax on above at 20%27,000
Add:4% Health and Education cess1,080
 Total Tax liability28,080

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