Capital Gains on Transfer of Foreign Exchange Assets: Exemption Under Section 115F
Section 115F: Overview
Section 115F of the Income-tax Act provides exemptions for Non-Resident Indians (NRIs) on long-term capital gains arising from the transfer of foreign exchange assets under specific conditions.
Exemption Conditions
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Reinvestment of Net Consideration:
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If an NRI realizes long-term capital gains from transferring a foreign exchange asset (referred to as the original asset) and reinvests the whole or part of the net consideration in a specified asset or in savings certificates referred to in Section 10(4B) within six months, the capital gain is exempt from tax as follows:
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Full Exemption: If the cost of the new asset is equal to or greater than the net consideration from the original asset, the entire capital gain is exempt under Section 45.
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Partial Exemption: If the cost of the new asset is less than the net consideration from the original asset, a proportional amount of the capital gain is exempt under Section 45.
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Definitions
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Cost of New Asset: For deposits referred to in sub-clause (iii) or specified under sub-clause (v) of clause (f) of Section 115C, the cost means the amount of such deposit.
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Net Consideration: The full value of the consideration received or accruing as a result of the transfer, reduced by any expenditure incurred wholly and exclusively in connection with such transfer.
Tax Implications of Transferring or Converting New Asset
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If the new asset is transferred or converted (otherwise than by transfer) into money within three years from the date of acquisition, the previously exempted capital gain becomes chargeable under “Capital gains” for the previous year in which the new asset is transferred or converted.
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