Do NRIs pay tax on Capital gain from Indian investments in their residing country?

[gourimaya]

Hi friends,

I am an NRI, working in Germany. As per the German rules, it is necessary to declare income from germany as well as outside germany. I think it is the same in other European countries as well. I am not sure about USA.

Also, there is a flat 25% tax in Germany on Capital gain regardless of whether it is short term/long term.

Now I am in a position that I have to pay tax for the gain from Indian investments, for which I have paid tax already in India (short term capital gain). My tax consultant has no idea how to avoid this double-taxation.

I know that there are many NRIs in this forum who work in Europe/USA. Do anyone has this kind of experience ?

 

[king_jsr]

Re: Do NRIs pay tax on Capital gain from Indian investments in their residing country

India has a Comprehensive Double Taxation Avoidence Agreement with Germany.

http://law.incometaxindia.gov.in/DIT/File_opener.aspx?fn=http://law.incometaxindia.gov.in/Directtaxlaws/cbdt/dta/A1_Germany.htm

The relevant clause reads as follows:

"4. Gains from the alienation of shares in a company which is a resident of a Contracting State may be taxed in that State."

Before I venture any further with my advice on how to avoid double taxation, I would like you to answer 2 quick questions.

1 What is your residential status in both countries India and Germany for the relevant AY.

2 Have you already filed your return in India for the relevant AY. If yes what was the amount of Total and Self Assessment Tax paid by you.

 

[gourimaya]

Re: Do NRIs pay tax on Capital gain from Indian investments in their residing country

Thanks king_jsr !

1. I am a permanent resident of Germany.
2. I have not filed IT-returns in India. But my bank has already deducted tax from my Demat account already.

 

[nac]

Re: Do NRIs pay tax on Capital gain from Indian investments in their residing country

^ You may get a better response from here. Post your tax related query here...

http://www.traderji.com/taxation-ma...-related-quieries-i-would-get-solved-139.html

 

[king_jsr]

Re: Do NRIs pay tax on Capital gain from Indian investments in their residing country

I am reproducing the relevant part of the DTAA:

"Article 23: Relief from Double taxation - 1. Tax shall be determined in the case of a resident of the Federal Republic of Germany as follows :
~~~
(b) Subject to the provisions of German tax law regarding credit for foreign tax, there shall be allowed as a credit against German tax payable in respect of the following items of income arising in the Republic of India and the items of capital situated there, the Indian tax paid under the laws of the Republic of India and in accordance with this Agreement on :
~
(iv) income in the meaning of paragraph 4 of Article 13 ;"

And paragraph 4 of Article 13 reads as follows:

"4. Gains from the alienation of shares in a company which is a resident of a Contracting State may be taxed in that State."

Now there are two ways of treating the TDS deducted by your Bank.

1 File your return in Germany and claim the credit of Taxes paid in India on your shares income. You will also have to declare the income you have earned in India. This can be done by virtue of the various paragraphs of the DTAA quoted above.

2 The second alternative is to file your return in India and claim a refund of TDS deducted by the Bank. Assuming your Income is below the maximum amount exempted from Tax (will depend on your age and sex).

The second option is best avoided considering the speed at which ITO processes refunds.