Exchange Control Manual


General Exemption for sale/transfer of securities
Date : Jun 02, 2005
10C.26 to 10C.28
General Exemption for Sale/Transfer of Shares/Bonds/Debentures of Indian Companies through a Stock Exchange acquired without repatriation benefit


10C.26 (i) Reserve Bank by its Notification No. FERA.149/93-RB dated 26th April 1993 has exempted the transfer of shares, bonds or debentures of Indian companies made by NRIs through stock exchange in India in case where (a) such transfers are made in favour of an Indian citizen or person of Indian origin resident in India or in favour of a company or other body corporate incorporated in India and (b) sale proceeds of shares are credited to the NRO account of the transferor with no right of repatriation outside India. In such cases, authorised dealers may credit the sale proceeds to the seller's NRO account after verifying the contract notes issued by recognised stock exchange brokers through whom the sale was effected. This exemption is available in respect of shares, bonds or debentures acquired by NRIs under the Portfolio Investment Scheme as well as under any Direct Investment Scheme.

(ii) For sale/transfer of shares, bonds or debentures by OCBs acquired on non-repatriation basis through a stock exchange in India, a consolidated application giving full particulars may be submitted to the concerned office of Reserve Bank. Permission will be granted by Reserve Bank for a specific period subject to renewal.


General Exemption for Sale/Transfer of Shares/Bonds/Debentures of Indian Companies through a Stock Exchange acquired with repatriation benefits under the Portfolio Investment Scheme



10C.27 (i) Reserve Bank by its Notification No.FERA.150/93-RB dated 26th April 1993 has exempted transfer of shares, bonds or debentures of Indian companies registered
in India previously acquired by NRIs/OCBs with repatriation benefits under the Portfolio Investment Scheme to persons resident in India or persons of Indian origin resident in India or in favour of companies or bodies corporate, incorporated under any law in force in India on the following conditions.

(a) The transferor had purchased such shares, bonds or debentures from the stock market through a member of a recognised stock exchange in India and delivery of shares, bonds or debentures so purchased has been taken by him or on his behalf by the concerned authorised dealer or its nominee.

(b) The shares, bonds or debentures are sold in the stock market through a member of a recognised stock exchange in India and the sale transaction is effected at the ruling market price as determined on the floor of the stock exchange by normal bid and offer method and through the same designated branch of the authorised dealer through which the shares, bonds or debentures were earlier purchased;

and

(c) The sale proceeds are paid to the said designated branch. Consequently, it is not necessary for NRIs/OCBs to obtain Reserve Bank's permission for sale of shares/bonds/debentures effected in the above manner. As regards the repatriation of sale proceeds received by the designated branches, Reserve Bank will, while granting approval for purchase of shares/bonds/debentures also grant approval for repatriation of the sale proceeds if and when shares/bonds/debentures are sold in the above manner. The actual repatriation of the sale proceeds or credit thereof to the NRE/FCNR account of the beneficiary will be subject to payment of Indian taxes.

(ii) Sale/transfer of shares/bonds/debentures acquired by NRIs/OCBs with repatriation benefits under the Direct Investment Scheme and sold through the Stock Exchange in India will require permission of Reserve Bank. Applications for necessary permission should be made by NRIs/OCBs to the Central Office of Reserve Bank in form TS 4 through the designated bank branch of an authorised dealer.

In such cases, permission for sale/transfer of shares / bonds/ debentures acquired with the right of repatriation will be granted by Reserve Bank to the bank branch designated by the seller or to the authorised dealer, as the case may be, who may sell the holdings at the ruling market price through a stock exchange at any time within the validity of the permission. While granting permission for sale/transfer, Reserve Bank will also authorise the designated branch/authorised dealer to credit the sale proceeds to the NRE or FCNR account of the seller or to remit them abroad subject to payment of taxes on capital gains, if any. Where the amount of capital gains tax is not immediately determinable, the designated branch/authorised dealer may allow repatriation of sale proceeds or credit thereof to the seller's NRE/FCNR account to the extent of the original cost of investment immediately on realisation of the sale proceeds. The excess amount, if any, representing capital gain should be kept by the designated branch/authorised dealer in a separate NRO account of the seller or in a suspense account. The designated branch/authorised dealer may allow withdrawal of this amount for credit to the NRE/FCNR account of the seller or remit it abroad, on production of necessary tax clearance certificate.

NOTE: Under Section204 of the Income-tax Act 1961, authorised dealers are required to deduct income-tax at a flat rate of 20% of the long-term capital gains accruing to NRIs on the transfer of specified assets which include shares/bonds/debentures of Indian companies, Government securities and any other notified assets. The amount of capital gains is to be arrived at on the basis of a formula laid down by Government. The tax deducted at source is required to be paid into Government treasury or the office of Reserve Bank, State Bank or any other nationalised bank authorised for the purpose, within one week from the date of deduction of tax. NRIs have, however, been given the option to pay tax at the above flat rate or pay it on the total income for the assessment year, in which case the remaining amount of sale proceeds withheld by authorised dealers may be credited to NRE/FCNR account of the seller or remitted to him abroad only after production of the necessary tax clearance certificate.


(iii) A quarterly statement of sales / transfers of shares / bonds / debentures acquired by NRIs/OCBs under the Direct Investment Scheme and sold through stock exchange by authorised dealers vide sub-paragraph (ii) above should be submitted by the concerned authorised dealer to the Central Office of Reserve Bank in form DSP within 15 days from the close of each calendar quarter.

General Exemption for Transfer of Rupee Securities by Non-residents as Gift

10C.28 By its Notification No. FERA.151/93-RB dated 26th April 1993, Reserve Bank has also exempted transfer, by way of gift, of any share, bond or debenture of a company registered in India made by a non-resident Indian or person of Indian origin to a citizen of India or a person of Indian origin resident in India provided -

(a) such share, bond or debenture was held by the transferor with the permission of the Reserve Bank, and
(b) such transfer is between relatives as defined in Section 6 of the Companies Act, 1956.


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