TAXATION OF NRI ON EXIT ROUTES FROM INVESTMENT IN INDIAN PRIVATE LIMITED COMPANY :-
Whenever a Non Resident wants to make a Full exit from his investment made in Indian private limited company, then there are different possible ways of exit routes available to him such as Buyback by the company itself, Sale to 3rd party, etc. All these different routes have different taxability which is discussed in detail in this post.
1. Buyback of shares by the private limited company :-
In the first option, the private limited company in which investment is held by the Non-resident Indian repurchases its own shares from that Non-resident. This buyback of Non-resident shares is done at the consideration fixed by the company. This buyback must be done in compliance with the Companies Act, 2013.
This buyback is taxable in the hands of that private limited company at an effective rate of 23.296% (20% + 12% Surcharge + 4% H&E Cess). Buyback tax is levied at the level of company, the consequential income arising in the hands of shareholders is exempt from tax as per section 10(34A). Hence, the buyback will be exempt for the Non-resident investor.
2. Sale to 3rd Parties :-
Next option available to Non-resident to exit from Indian private limited company is the sale of his share of investment to any 3rd party. When a non-resident sells his shares to any third party, then it will be taxable under capital gain.
Gain will be calculated as = Amount received on Sale – Amount paid on purchase of shares (including security premium).
This capital gain will be taxable as below :-
If holding period is upto 24 months then taxable under Short term capital gain on Slab Rates Basis applicable to that Non resident.
If holding period is more than 24 months then taxable under Long term capital gain @20% with indexation benefits.
3. Dividend Distribution :-
Any Accumulated Profit can be distributed as dividend to the shareholders. Whenever any non resident shareholder receives dividend it will be taxable @20% plus applicable surcharge and 4% cess ( Maximum marginal rate of 28.5%) on gross basis. Non resident can consider DTAA ( Double Taxation Avoidance Agreement), if any agreed between his country and India so as to avoid double taxation.
4. Bonus Share :-
Security premium can be used to issue Bonus share to existing Shareholders.