{"id":57502,"date":"2023-06-01T11:24:57","date_gmt":"2023-06-01T05:54:57","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=57502"},"modified":"2023-06-01T11:26:48","modified_gmt":"2023-06-01T05:56:48","slug":"forex-benefit-denied-to-non-resident-investor-on-sale-of-unlisted-shares","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/forex-benefit-denied-to-non-resident-investor-on-sale-of-unlisted-shares\/","title":{"rendered":"Forex Benefit Denied to Non-Resident Investor on Sale of Unlisted Shares"},"content":{"rendered":"\n<p>Today, we will delve into a rather complex topic of\nForex Benefit Denied to Non-Resident Investors on Sale of Unlisted Shares.\nWhile the forex market can offer lucrative opportunities, lacking knowledge or\nunderstanding of regulations can lead to benefit denial. Non-Resident Investors\nwho invest in unlisted shares may need help accessing their forex benefits,\nwhich, in turn, affects their returns on investment. Let\u2019s explore this topic\nin detail.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title ez-toc-toggle\" style=\"cursor:pointer\">Page Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/corpbiz.io\/learning\/forex-benefit-denied-to-non-resident-investor-on-sale-of-unlisted-shares\/#What_Is_Forex_Benefit\" >What Is Forex Benefit?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/corpbiz.io\/learning\/forex-benefit-denied-to-non-resident-investor-on-sale-of-unlisted-shares\/#Who_Is_a_Non-Resident_Investor_on_Sale_of_Unlisted_Shares\" >Who Is a Non-Resident Investor on Sale of Unlisted Shares?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/corpbiz.io\/learning\/forex-benefit-denied-to-non-resident-investor-on-sale-of-unlisted-shares\/#Denial_Of_Forex_Benefit_to_Non-Resident_Investor_on_Sale_of_Unlisted_Shares\" >Denial Of Forex Benefit to Non-Resident Investor on Sale of Unlisted Shares<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/corpbiz.io\/learning\/forex-benefit-denied-to-non-resident-investor-on-sale-of-unlisted-shares\/#Why_Forex_Benefit_Denied_to_Non-Resident_Investor_on_Sale_of_Unlisted_Shares\" >Why Forex Benefit Denied to Non-Resident Investor on Sale of Unlisted Shares?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/corpbiz.io\/learning\/forex-benefit-denied-to-non-resident-investor-on-sale-of-unlisted-shares\/#The_Acts_and_Legal_Provisions_Related_to_The_Topic_Forex_Benefit_Denied_to_Non-Resident_Investor_on_Sale_of_Unlisted_Shares\" >The Acts and Legal Provisions Related to The Topic Forex Benefit Denied to Non-Resident Investor on Sale of Unlisted Shares<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/corpbiz.io\/learning\/forex-benefit-denied-to-non-resident-investor-on-sale-of-unlisted-shares\/#Landmark_Case_Laws_Related_to_The_Forex_Benefit_Denied_to_Non-Resident_Investor_on_Sale_of_Unlisted_Shares\" >Landmark Case Laws Related to The Forex Benefit Denied to Non-Resident Investor on Sale of Unlisted Shares<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/corpbiz.io\/learning\/forex-benefit-denied-to-non-resident-investor-on-sale-of-unlisted-shares\/#Conclusion\" >Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_Is_Forex_Benefit\"><\/span>What Is Forex Benefit?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The definition of \u201cForex Benefit\u201d refers to the advantages or profits gained by individuals or organizations who engage in foreign exchange trading. The benefits can vary based on the trader&#8217;s approach, the currency pair traded, market conditions, and Forex Benefit Denied to Non-Resident Investor on Sale of Unlisted Shares Forex Benefit Denied to Non-Resident Investor on Sale of Unlisted Shares the trading strategy used. Some commonly identified benefits of Forex trading include high liquidity, 24\/7 market access, low transaction costs, and the potential for significant returns. However, it is essential to note that Forex trading is highly speculative and carries a high risk of loss. Hence, it only suits some and requires proper knowledge and risk management.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Who_Is_a_Non-Resident_Investor_on_Sale_of_Unlisted_Shares\"><\/span>Who Is a Non-Resident Investor on Sale of Unlisted Shares?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>A Non-Resident Investor on the Sale of Unlisted Shares\nrefers to an investor who is not a resident of India but has invested in shares\nof an unlisted Indian company. When these shares are sold, tax regulations and\nrules apply based on the nationality and residency status of the investor and\nthe profit or gain made on the transaction. Non-Resident Investors may have different\ntax implications and rates than Resident Investors in India.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Denial_Of_Forex_Benefit_to_Non-Resident_Investor_on_Sale_of_Unlisted_Shares\"><\/span>Denial Of Forex Benefit to Non-Resident Investor on Sale of Unlisted Shares<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The Foreign Exchange Management Act 1999 (FEMA)\nregulates foreign exchange transactions in India. It governs all foreign\nexchange transactions and transactions in securities and immovable property.\nOne of the aspects that FEMA regulates is the sale of unlisted shares by\nnon-resident investors. Under FEMA, non-resident investors are not entitled to\ncertain benefits when they sell unlisted shares. It has been a point of\ncontention for some investors, who feel they are being unfairly treated and not\nreceiving the full benefits they are entitled to.<\/p>\n\n\n\n<p>The non-resident investors&#8217; sale of unlisted shares is\ngoverned by Rule 9 of the Foreign Exchange Management (Transfer or Issue of Any\nForeign Security) Regulations, 2004. This Rule states that non-resident\ninvestors are not entitled to the benefit of indexation on the cost of\nacquiring shares. Indexation is the process of adjusting the cost of\nacquisition of shares for inflation so that the profit or loss on the sale of\nthe shares can be calculated accurately. This method calculates the gain or\nloss on the sale of shares, which reflects the current inflation rate.<\/p>\n\n\n\n<p>The rationale behind denying indexation to\nnon-resident investors is that the profit or loss on the sale of shares made by\nnon-resident investors is subject to taxation in India. However, non-resident\ninvestors may have already paid tax in their home country on the same income.\nIt has led to double taxation of the same income, disincentives non-resident\ninvestors to invest in India.<\/p>\n\n\n\n<p>Another benefit denied to non-resident investors is\nthe benefit of capital gains tax exemption for investments made before April 1,\n2017. This benefit is available to resident and non-resident investors, who can\nshow proof of their residential status in India for more than 182 days in a\nfinancial year. However, non-resident investors who cannot meet this criterion\nare not entitled to the capital gains tax exemption.<\/p>\n\n\n\n<p>Despite these restrictions, non-resident investors can\nstill invest in unlisted shares in India. They can sell their shares and\nrepatriate the sale proceeds to their home country, subject to the regulations\nof FEMA. Non-resident investors can also claim credit for taxes paid in India\nagainst taxes paid in their home country under the provisions of the Double Tax\nAvoidance Agreement (DTAA) signed between India and their home country.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Why_Forex_Benefit_Denied_to_Non-Resident_Investor_on_Sale_of_Unlisted_Shares\"><\/span>Why Forex Benefit Denied to Non-Resident Investor on Sale of Unlisted Shares<strong>?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Forex benefit is denied to non-resident investors on\nthe sale of unlisted shares because the tax laws in most countries do not allow\nsuch benefits to foreign investors. Unlisted shares are those that are not\ntraded on a stock exchange, and they are typically bought and sold privately\nbetween parties.<\/p>\n\n\n\n<p>When non-resident investors sell unlisted shares, they\nmay receive a capital gain in the local currency of the country where the\nshares are located. However, when they convert the proceeds to their home\ncurrency, they may be subject to foreign exchange (forex) fluctuations and\ncurrency conversion costs.<\/p>\n\n\n\n<p>Some countries offer forex benefits to foreign\ninvestors when they sell listed shares on a stock exchange to address this\nissue, as the sale and purchase are made in the same currency. However,\nunlisted shares are not traded on a stock exchange, so they are not eligible\nfor the forex benefit.<\/p>\n\n\n\n<p>Therefore, non-resident investors who sell unlisted\nshares may have to bear additional costs associated with currency conversion,\nwhich reduces their overall return on investment.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"The_Acts_and_Legal_Provisions_Related_to_The_Topic_Forex_Benefit_Denied_to_Non-Resident_Investor_on_Sale_of_Unlisted_Shares\"><\/span>The Acts and Legal Provisions Related to The Topic Forex Benefit Denied to Non-Resident Investor on Sale of Unlisted Shares<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Foreign Exchange or Forex transactions have constantly been subjected to regulatory laws and policy guidelines to ensure a stable economic environment and promote <strong>international trade<\/strong><sup><a href=\"https:\/\/en.wikipedia.org\/wiki\/International_trade\"><strong>[1]<\/strong><\/a><\/sup> and investment. The forex market is one of the most dynamic and complex, changing rapidly. The Indian forex regulation framework is guided by The Foreign Exchange Management Act (FEMA), 1999, which replaced the Foreign Exchange Regulation Act (FERA), 1973. The act governs all forex-related matters in India, including forex trading, investments, contracts, acquisitions, and borrowings.<\/p>\n\n\n\n<p>The government&#8217;s approach to attracting foreign\ninvestment has noticed a noticeable shift in recent years. The government has\ntaken steps to provide a conducive business environment for foreign investors\nto invest and grow their businesses in India. In line with this, in 2017, the\ngovernment of India brought significant changes to FEMA that allow foreign\nresidents to acquire shares in unlisted Indian companies.<\/p>\n\n\n\n<p>However, despite these changes, non-resident foreign\ninvestors still need help realizing their investments&#8217; full potential. One of\nthe critical issues that foreign investors face in India is related to forex\nbenefits. The Indian government does not provide forex benefits to non-resident\ninvestors on the sale of unlisted shares. It has been a significant concern for\nforeign investors as it significantly impacts their ROI, making their\ninvestments less attractive.<\/p>\n\n\n\n<p>The Reserve Bank of India (RBI) governs these foreign\nexchange transactions. According to the RBI&#8217;s foreign exchange management\nregulations, non-residents can acquire shares in Indian companies on a\nrepatriable or non-repatriable basis. Non-repatriable investment implies that\nthe investor cannot take the investment proceeds out of the country, regardless\nof the gains or losses. On the other hand, repatriable investments allow the\ninvestor to take the profits and capital gains out of India after paying\napplicable taxes on the returns.<\/p>\n\n\n\n<p>Despite the RBI&#8217;s guidelines, foreign investors are\nnot entitled to Forex benefits on selling their shares in unlisted companies.\nIt is because the Reserve Bank of India deems that the forex benefit on shares\nof unlisted companies cannot be determined. The RBI has also stated that forex\nbenefits for non-residents on listed companies&#8217; shares are only available if\nsold through the recognized stock exchange at the prevailing market price.<\/p>\n\n\n\n<p>The <a href=\"https:\/\/corpbiz.io\/income-tax-return-filing\"><strong>income tax<\/strong><\/a> act of India also governs the taxation aspect of the sale of shares by non-repatriable investors. Non-resident investors must pay capital gains tax on selling their shares in unlisted Indian companies. The capital gains tax rate is calculated based on the investment period. If the investment period is less than or equal to 24 months, the short-term capital gain tax rate is applied to the sale proceeds. The short-term capital gain tax rate is 30% plus applicable surcharges and cesses. The long-term capital gains tax rate is applied if the investment period is greater than 24 months. The long-term capital gains tax rate is 20% plus surcharges and cesses.<\/p>\n\n\n\n<p>The Indian government&#8217;s decision not to provide forex\nbenefits to non-resident investors on the sale of their unlisted shares has\nbeen criticized by several foreign investors. This policy discourages foreign\ninvestors from investing in unlisted Indian companies. It is because they do\nnot have the same potential for returns that they would have if they invested\nin listed Indian companies.<\/p>\n\n\n\n<p>To address this issue, the Indian government needs to\nre-evaluate its policy on forex benefits for foreign investors. By providing\nforex benefits to non-residents on selling their shares in unlisted Indian\ncompanies, the government can create a more conducive investment environment\nfor foreign investors. It will not only attract foreign investment but will\nalso reduce the barriers that foreign investors face when investing in India.<\/p>\n\n\n\n<p>Thus, the Indian government has made significant\nstrides in creating a more conducive investment environment for foreign\ninvestors. However, denying forex benefits on selling unlisted shares to\nnon-resident investors remains a significant issue. This policy discourages\nforeign investors from investing in unlisted Indian companies, which could\nsignificantly impact the country&#8217;s economic growth. The government needs to\nre-evaluate its policy on forex benefits and create a more conducive investment\nenvironment for foreign investors. It will not only attract foreign investment\nbut will also reduce the barriers that foreign investors face when investing in\nIndia.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Landmark_Case_Laws_Related_to_The_Forex_Benefit_Denied_to_Non-Resident_Investor_on_Sale_of_Unlisted_Shares\"><\/span>Landmark Case Laws Related to The Forex Benefit Denied to Non-Resident Investor on Sale of Unlisted Shares<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Several landmark case laws relate to Forex Benefit\nDenied to Non-Resident Investor on Sale of Unlisted Shares. Some of the notable\ncases are:<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Vodafone International Holdings B.V. V. Union of India (2012)<\/h3>\n\n\n\n<p>In this case, the Supreme Court of India held that the\ntransfer of shares of an Indian company by a foreign company to another foreign\ncompany is not taxable under Indian law.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Azadi Bachao Andolan V. Union of India (2003) <\/h3>\n\n\n\n<p>In this case, the Supreme Court of India held that the\nbenefit of Double Taxation Avoidance Agreements (DTAA) cannot be denied to\nnon-resident investors.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Tata Sons Ltd V. The Deputy Commissioner of Income Tax (2017) <\/h3>\n\n\n\n<p>In this case, the Bombay High Court held that a\nnon-resident shareholder who sells shares of an Indian company outside India is\nnot liable to pay tax in India.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Castleton Investment Ltd. V. CIT (2018) <\/h3>\n\n\n\n<p>In this case, the Delhi High Court held that the gains\nmade by a foreign investor on the sale of shares of an Indian company are not\ntaxable in India.<\/p>\n\n\n\n<p>These cases have established a clear legal framework\nfor taxing non-resident investors for selling unlisted shares in India. The\ncourts have consistently upheld the principle of non-discrimination against\nforeign investors and have emphasized the importance of complying with\ninternational tax laws and DTAA provisions.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>In conclusion, the benefit of indexation on the cost of acquisition of unlisted shares and the benefit of capital gains tax exemption is denied to non-resident investors. It has been a concern for some investors, who feel they are unfairly treated. However, these restrictions have been implemented to prevent double taxation and ensure non-resident investors pay taxes in India. Non-resident investors can still invest in unlisted shares in India, subject to the regulations of FEMA. They can claim credit for taxes paid in India against taxes paid in their home country under the provisions of the DTAA.<\/p>\n\n\n\n<p class=\"text-left\"><b>Read our Article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/company-incorporation-by-non-resident-director\/\">Company Incorporation By Non-Resident Director<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Today, we will delve into a rather complex topic of Forex Benefit Denied to Non-Resident Investors on Sale of Unlisted Shares. While the forex market can offer lucrative opportunities, lacking knowledge or understanding of regulations can lead to benefit denial. Non-Resident Investors who invest in unlisted shares may need help accessing their forex benefits, which, [&hellip;]<\/p>\n","protected":false},"author":35,"featured_media":57507,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[844],"tags":[3712],"acf":{"service_id":"112"},"authorName":"Karan Singh","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2022\/01\/processed-1-150x150.jpeg","authorDescription":"A legal writing enthusiast, a wanderer, and a zealous reader. After gaining a lot of knowledge about the diverse legal topics and developing research skills, Karan joined the league of legal content writers to deliver quality-rich blogs.","postViews":1729,"readingTime":7,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/57502"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/35"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=57502"}],"version-history":[{"count":3,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/57502\/revisions"}],"predecessor-version":[{"id":57511,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/57502\/revisions\/57511"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/57507"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=57502"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=57502"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=57502"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}