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Ltcg on units of equity oriented fund in case of non resident

Shelly (student) (95 Points)

19 April 2018

1. can units of equity oriented fund be unlisted or they are always 'listed'
2. if they can be unlisted, then whether they can be covered in sec 112(1)(c)(i)?

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4 Replies

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (171423 Points)
Replied 20 April 2018

1. It can be listed or otherwise

2. No

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Shelly (student) (95 Points)
Replied 20 April 2018

can you explain the reason of 2)

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (171423 Points)
Replied 20 April 2018

Equity oriented MF units cannot be sold in open market otherwise if listed.

So, either of its redemption or (LT) transfer attracted Sec. 10(38), and hence sec. 112 was not applicable (till AY 2018-19). But now From AY 2019-20 section 112A will be applicable.

Ajay (CA Job) (512 Points)
Replied 22 April 2018

1. Yes, Equity Oriented Mutual Fund can be unlisted. The best cue is to refer to the latest amendment u/s 112A of the Income Tax Act, 1962. The provisions have been made exclusively to determine Cost of Acquisition for the purpose of computing LTCG u/s 112A in respect of Equity Oriented Mutual Funds which are not listed (i.e. unlisted) on a recognized stock exchange as on 31.01.2018 (under Sec.55(2)(ac)).

2. In your question did you mean Sec.112(1)(c)(iii)?

Now, for Equity Oriented Mutual Fund (referred to as "EOMF" for our purpose)for a non-resident the position would be as under:

As per Sec.112(1)(c)(iii) the amount of income-tax on long-term capital gains arising from the transfer of a capital asset, being unlisted securities or shares of a company not being a company in which the public are substantially interested, calculated at the rate of ten percent on the capital gains in respect of such asset as computed without giving effect to the first and second proviso to section 48.
The expression "securities" shall have the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (32 of 1956).
Securities as per Sec.2(h) of the Securities Contracts (Regulation) Act, 1956 includes units of Mutual Funds.

Thus, now, to analyze our situation:

The assessee is a Non-Resident.
He holds a unit(s) of an unlisted EOMF.
Such unit(s) is a long-term capital asset (i.e. more than 12 months).
He transfers such EOMF unit(s) during the previous year.

The Non-Resident can take the benefit of Sec.112(1)(c)(iii) and LTCG on such transfer of unlisted EOMF will be taxed @ 10% with the following conditions while computing the LTCG:

The benefit of Indexation cannot be taken.
The benefit of calculation of LTCG in foreign currency as per the first proviso to Sec.48 cannot be availed.

Please correct me if I am wrong, anyone!

Regards

Ajay