Capital gain exemption to rupee denominated bonds w.e.f AY 2018-19

By | February 11, 2017
(Last Updated On: February 11, 2017)

Extension of Capital Gain exemption to rupee denominated bonds

[Sections 47 and 48 of Income tax Act – Applicable from Assessment Year 2018-19 ( Financial Year 2017-18) ]

With a view to provide relief to non-resident investor, in the wake of permission to the Indian corporates by the Reserve Bank of India (the RBI) to issue rupee denominated bonds outside India as a measure to enable the Indian corporates to raise funds from a source outside India, the Finance Act, 2016, inter-alia, amended section 48 of the Act with effect from the 1st April, 2017 so as to provide that the gains arising on account of appreciation of rupee against a foreign currency at the time of redemption of rupee denominated bond of an Indian company subscribed by him, shall be ignored for the purpose of computation of full value of consideration.

Representations have been received to allow exemption from capital gain arising to secondary holders as well. It has also been represented to allow exemption in respect of transfer of Rupee Denominated Bonds from non-resident to non-resident for the purpose of increasing acceptability and transferability of such instrument in the foreign market.

In order to further provide relief in respect of gains arising on account of appreciation of rupee against a foreign currency at the time of redemption of rupee denominated bond of an Indian company to secondary holders as well, Finance Bill 2017 proposed to amend Fifth provisio of section 48 providing that the said appreciation of rupee shall be ignored for the purposes of computation of full value of consideration.

Further, with a view to facilitate transfer of Rupee Denominated Bonds from non-resident to non-resident, it is proposed to amend section 47 so as to provide that any transfer of capital asset, being rupee denominated bond of Indian company issued outside India, by a non- resident to another non- resident shall not be regarded as transfer.

These amendments will take effect from 1st April, 2018 and will, accordingly, apply in relation to the assessment  year 2018-19 and subsequent years.

[Clause 24]

Relevant Extract of Clause 23 of Finance Bill 2017 : Rupee denominated bonds issued outside India not regarded as transfer

Amendment of section 47.

23. In section 47 of the Income-tax Act, with effect from the 1st day of April, 2018,—

(a) after clause (viia), the following clause shall be inserted, namely:—

“(viiaa) any transfer, made outside India, of a capital asset being rupee denominated bond of an Indian company issued outside India, by a non-resident to another non-resident;”;

Explanation on  Clause 24 of Finance Bill 2017

Clause 24 of the Bill seeks to amend section 48 of the Income-tax Act relating to mode of computation.

The fifth proviso to the said section provides that in case of an assessee being a non-resident, any gains arising on account of appreciation of rupee against a foreign currency at the time of redemption of rupee denominated bond of an Indian company subscribed by him, shall be ignored for the purposes of computation of full value of consideration.

Further, under the existing provisions of the said section, “indexed cost of acquisition” is defined to be an amount which bears to the cost of acquisition the same proportion as Cost Inflation Index for the year in which the asset is transferred bears to the Cost Inflation Index for the first year in which the asset was held by the assessee or for the year beginning on the 1st day of April, 1981, whichever is later.

It is proposed to amend the said proviso so as to provide that in case of an assessee being a non-resident, any gains arising on account of appreciation of rupee against a foreign currency at the time of redemption of rupee denominated bond of an Indian company held by him, shall be ignored for the purposes of computation of full value of consideration.

It is also proposed to make consequential amendments to the said section so as to replace the reference of 1st day of April, 1981 with the 1st day of April, 2001.

These amendments will take effect from 1st April, 2018 and will, accordingly, apply to the assessment year 2018- 2019 and subsequent years.

Relevant Extract of Clause 24 of Finance Bill 2017

Amendment of section 48.

24. In section 48 of the Income-tax Act, with effect from the 1st day of April, 2018,—

(a) in the fifth proviso, for the word “subscribed”, the word “held” shall be substituted;

(b) in the Explanation, in clause (iii), for the figures, letters and words “1st day of April, 1981”, the figures, letters and words “1st day of April, 2001” shall be substituted.

 

Books on Budget 2017-18

Taxmann’s Budget 2017-18 -Book

Budget 2017-18- Notifications on Central Excise , Customs and Service tax – New Book

Ajit Prakashan’s Union Budget 2017-18 -New Book

BDP’s Customs Law Manual (2017-18 Budget Editon with CD) -New Book

Related Post on Budget 2017-18

Budget Speech 2017-18 -Download /Print

Finance Bill 2017 -Download /Print -Budget 2017-18

Memorandum Explaining Provisions in Finance Bill 2017

Updates  on Union Budget 2017-18

Leave a Reply

Your email address will not be published.