Following the introduction of the 10% Long Term Capital Gains (LTCG) tax in the 2018 Finance Bill in India, the Central Board of Direct Taxes (CBDT) has issued a FAQ document in relation to the changes in legislation.

India had exempted taxation of LTCGs since 2004 to attract investment in Indian equities provided that Securities Transaction Tax (STT) had been paid on acquisition of the shareholding. Gains exceeding INR 100,000 made on sale of listed equities of an Indian company, units of an Indian equity oriented fund, and units of an Indian business trust would now be subject to a 10% tax. This does not affect the application of the STT which must be paid in the usual manner.

Some of the key points are:

• LTCG would apply to transactions of sale of securities made on or after 1 April 2018
• In cases where securities were acquired before 31 January 2018, the cost of securities in determining the gain will be their fair market value as it stood on 31 January 2018. Therefore, capital appreciation only from 1 February 2018 onwards would be subject to the new tax
• Indexation relief is not available to allow for inflation for calculating taxable gain
• Non-resident investors are required to appoint a local agent for computing and paying the tax arising on a self-assessed basis
• In principle, for a non-resident investor tax relief may be available under an applicable double tax treaty. However, under many of its treaties, India retains the taxation right on sale of shares of Indian tax resident companies.

For further information, please contact Paul Hale or Anvit Jain.