NRI Capital Gain Tax - FIFO?

Q&A: Questions & Answers
1

Dear All,

I am an NRI holding SBI demat/trading account.

Here is the situation:

Let’s say I bought 100 Ajanta shares in on Jan 1, 2014 and then 100 again on Jan 1, 2015.

If I were to place a sell order on 12 Jan 2015 for 100 Ajanta shares, ideally there should be no capital gains tax applicable as the 100 shares bought in 2014 should be sold first. (capital gain tax is not applicable for holding period > 365 days)

It is quite logical for FIFO to be used while calculating capital gain tax (which is deducted at source by Banks).

However, just wanted to verify if other ValuePickr members have faced any issues with this? I don’t want the bank to charge me hefty capital gain tax and go back and forth with the system to claim refund!

Thanks!

2

Sushil, there is a Departmental circular clarifying that for shares held in demat, the FIFO rule will apply for capital gains tax. Refer link:http://www.moneycontrol.com/news/tax/find-out-how-to-handle-demat-shares-for-tax-calculations_681137.html

I am not sure if this will apply to an NRI. Please check with a tax consultant.

3

I am an NRI. For shares purchased and sold through my PIS a/c, I have incurred TDS for STCG of ~17% and no TDS for LTCG (even after adjusting for splits). Hope this helps.

4

When counting LTCG as mentioned above, I used FIFO and yes there were more shares which if sold under FIFO, would incur STCG.

5

I thought it’s more at the discretion of the investors in India like this…

With FIFO method, we’ll end up paying more taxes.

6

Thanks

bomi karkaria&Aksh

@ Chintan

Spot on! Thanks, that’s what I needed to know. Thanks to the magnificent returns last year, I was worried about having to pay capital gain tax!

7

Hi Sushil,

FIFO rule will apply. I am NRI too, and have exactly same concern, got this clarified from my bank

8

It should be FIFO for the capital gain tax calculations. Even if you try to avoid tax by making your own rules, during scrutiny by income tax, you will have to pay the taxes as per FIFO and it attracts interest and penalty. So go by FIFO rule only.

9

When buying shares, if one has multiple demat accounts, then splitting the shares across the demat accounts may give flexibility while selling.
Won’t this give taxpayer the flexibility to sell from the demat account of his choice and may help counter the FIFO issues if they were bought under just one DEMAT account?

10

But you will have to pay taxes in you foreign country of residence. Is it not?

11

The question is for US based NRIs related to LTCG tax:

Does US based NRIs need to pay LTCG tax in India for gains on NRE demat Account? Is it fine to pay taxes only in US as US tax resident.

If at all paying in India, how are you handling as tax years different (in US Jan-Dec, in India April-March)

12

@muralimohan001 .Did you find any ways to deal with your situation. I am also in same situation, please let me know if you find any ways.

13

This is the plan:

Step 1. For 2018 Jan to 2018 March - File taxes in India. (This step is valid for only 2018)
Step 2: For 2018 Jan to 2018 Dec file taxes in USA but show the proof that you already paid in India for 2018 Jan to 2018 March. While filing in US consider India tax filing to calculate amounts.
Step 3. For 2018 April to 2019 March - File taxes in India but show the proof that you already paid in USA for 2018 March to 2018 December. While filing in India consider US tax filing to calculate amounts.
Step 4: For 2019 Jan to 2019 Dec file taxes in USA but show the proof that you already paid in India for 2019 Jan to 2019 March. While filing in US consider India tax filing to calculate amounts.
Step 5: For 2019 April to 2020 March - File taxes in India but show the proof that you already paid in USA for 2019 March to 2019 December. While filing in India consider US tax filing to calculate amounts.

14

did you file tax this way in USA? My tax filer is saying that they can consider NRO account transaction for US tax return but NRE account they are not ready to consider. Any one else has same situation. Trying to understand how to file taxes for NRE and NRO account while being in USA as US resident.

What proof we need to submit in USA that we filed Jan-march tax in India ( Is it Indian IT return form?)

Thanks in Advance

15

Hi. Were you able to find a solution.
Anyone has a recommendation for filing tax for nre account in USA/India.
Thanks

16

Yes, you need to find CPA in USA and get it done from them. In January you inform them that you want to file Tax return for global income in USA. They will file extension for you in USA that will give you time to file tax by Oct. File FBAR before march in USA and file IT return in india in April, Once filed in India, Give copy to CPA in USA (IT return, Stock gain/loss, rental income if any or FD or any other income.) They will consider given tax in india and calculate tax in USA.
USA :
short term gain becomes part of your income (Most probably 24% tax kind off)
Long term gain tax is 15%
Only $3000/- loss can be adjusted in one year(If someone made loss of say $9K, you can offset only $3K each year so it will take around 3 years to claim- this is too bad for investors)
Gains are fully Taxed but losses can be adjusted to $3K.

Generally rental income of India does not generate tax in USA and depreciation kicks in that sets off rental income

It is applicable for NRE/NRO all kind off.

Ping me if you need more information.
NOTE: CPA may charge you between $500 to $2K depending on your case.

2 Likes
17

Thank you so much for the detailed response. Do you have any recommendations for cpa?
Thank you in anticipation.