Section 48 of the Income-tax Act, 1961 (“IT Act”) provides the computation mechanism for capital gains arising to a taxpayer pursuant to the transfer of a capital asset. The said provision, inter alia, permits non-resident taxpayers to account for foreign currency fluctuation while computing capital gains arising from the transfer of shares or debentures of an Indian company. However, where capital gains arise to a non-resident taxpayer pursuant to the transfer of unlisted securities or shares of a private company, section 112(1)(c)(iii) of the IT Act provides that such capital gains should be computed without giving effect to any foreign currency fluctuations. A concessional tax rate of 10% (plus applicable surcharge and cess) is available on such gains. Section 112(1)(c)(ii) of the IT Act, on the other hand, provides a higher tax rate of 20% (plus applicable surcharge and cess) on any other long-term capital gains arising to a non-resident (i.e., other than gains arising from transfer of unlisted securities or shares) while, inter alia, allowing foreign currency fluctuation benefits to such non-residents.
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