11 hours ago
What are the Indian tax rules for NRIs selling bonds?
I have been a non-resident Indian (NRI) residing in Australia since 2010. In February 2013, I invested in a listed HUDCO bond with a tenure of 15 years. I am now considering selling this bond before its maturity. What would be the tax implications in India arising from the early sale of this bond?
If you sell your HUDCO bond before its maturity, the profit will attract capital gains tax in India.
Under Indian tax law, the holding period determines the nature of capital gains. For listed bonds, a holding period of more than 12 months qualifies the profit as long-term capital gains (LTCG).
Since you've held the HUDCO bond for over 12 years, your gains will be treated as LTCG and taxed at 12.5% plus applicable surcharge and cess. Note that indexation benefit is not available.
The India-Australia Double Taxation Avoidance Agreement (DTAA) provides clarity. Article 13(6) of the DTAA, which acts as a residuary clause, applies in your case since gains from bond sales aren't covered under specific clauses.
This residuary clause states that in cases not specifically addressed in clauses 1 to 5 of Article 13, the domestic law of each contracting state shall apply. This means that both countries—India and Australia—can tax the capital gains, based on their domestic laws. So while you will be taxed in India, you may also have to report the income in Australia.
However, Australia allows you to claim a foreign tax credit for the taxes paid in India. This ensures you're not taxed twice on the same income.
You must file an income tax return in India declaring the capital gains and pay any tax balance after TDS (if applicable). You can then use the Indian tax paid as a credit when filing your Australian tax return.
Please consult a qualified tax advisor in both India and Australia to account for any recent legal changes or individual circumstances.
Harshal Bhuta is partner at P. R. Bhuta & Co. CAs
