India source income may be seen as accrued in India

I’m living in London for the last 5 years. I have few Indian stocks and want to book a profit. How will I be taxed?

—Sayantan Chandra

Capital gain from sale of shares of an Indian company is taxable in India. The taxability will depend on the nature of the asset, holding period and residential status of the seller. Capital gain on sale of equities listed on a recognised stock exchange in India will be classified as long term if held for more than 12 months. Long-term capital gains (LTCG) from share sale are tax exempt provided securities transaction tax has been paid. Short-term capital gains (STCG) on sale of listed equity shares are taxable at 15% plus applicable surcharge and education cess provided securities transaction tax has been paid; an effective tax rate of 17.77%.

Capital gain on sale of unlisted shares will be classified as long term if held for more than 24 months. STCG on sale of such equity shares are taxable at applicable marginal tax rate, plus applicable surcharge and education cess. LTCG from unlisted shares earned by a non-resident Indian are taxed at 10% plus applicable surcharge and education cess without giving the benefit of indexation; an effective tax rate of 11.85%. As you are out of India for past 5 years, you are likely to qualify as a non-resident. If you have purchased the equity shares before leaving India, the gain would have no tax if the shares are listed and a tax of 10% (without indexation) in case of unlisted shares. LTCG is tax exempt if it’s re-invested in specified bonds or a residential house in India. STCG on unlisted shares is taxable at applicable slab rates.

Is there a difference between income accrued and income earned in India?

—Kapil Rohatgi

There is no clear differentiation provided in the income tax law for income accrued and income earned in India. Based on various judicial precedents, income is said to “accrue” when there is a right to payment and when there is unconditional liability on behalf of the payer to pay it to taxpayer. If it is not dependent upon happening of some contingency, the right or obligation may be called as “accrued”.

Any income sourced from India may be considered income accrued or earned in India. These can be profits from sale of goods or services, rental income from a house, interest income from a bank account, capital gains on transfer of any property, salary received for services rendered in India irrespective of where it is received and income, whose source is in India.