Tax FAQs for NRIs: Schedule AL, India-Germany DTAA decoded

As a non-resident Indian (NRI) with capital gains of around ₹1 crore, do I need to file Schedule AL (assets and liabilities)? Also, should I disclose all the assets or only those in India?

—Name withheld on request

Schedule AL is mandatory in case your total income exceeds ₹50 lakh during a financial year. All assets, including immovable assets, financial assets and movable assets, are required to be disclosed along with the liabilities incurred in relation to such assets. The disclosure relates to the assets and liabilities at the end of the year. Since you are a non-resident, only the details of assets located in India (along with corresponding liabilities) are to be mentioned.

Since you bought listed shares in 2018, under the Indian tax law, they will qualify to become long-term capital assets, and the gains or loss that you will make on their sale would become long-term capital gain/loss (LTCG/LTCL). LTCG exceeding ₹1 lakh earned from the sale of listed shares are taxed at 10% (plus applicable surcharge and cess). Indexation benefit is not available. Also, benefit of foreign currency conversion adjustment is not available.

The cost of acquisition would depend on whether you had purchased the shares before 1 February 2018, or later, since LTCG earned on listed shares were exempt from tax before the Finance Act 2018 amendments were passed. If you had acquired the shares earlier, the cost of acquisition would be higher of (a) actual purchase price or (b) fair market value as on 31 January 2018 (not exceeding actual sale price). If you had acquired on or after 1 February 2018, then it would be actual acquisition price.

Under the India-Germany DTAA, India has the source taxation rights for taxing capital gains derived from sale of Indian shares. Therefore, in your case, you will first be liable to pay tax under the Indian tax law. Relief from double taxation article under India-Germany DTAA contains a mix of income exemption method and tax credit method (depending on the type of income) as the methods for relieving double taxation in Germany. For relieving double taxation on capital gains derived from the sale of Indian listed shares, tax credit method applies under DTAA and, thus, you may claim foreign tax credit in Germany against the taxes paid on LTCG in India.

Harshal Bhuta is a partner at chartered accountancy firm P.R. Bhuta & Co.