Section 115AD of ITA, 1961 : Section 115Ad: Tax On Income Of Foreign Institutional Investors From Securities Or Capital Gains Arising From Their Transfer

Explanation using Example

Imagine a Foreign Institutional Investor (FII) from Germany, named 'Global Invest GmbH', has invested in Indian securities. During the financial year, they receive income from two sources:

• Interest income from corporate bonds amounting to INR 10 million.
• Short-term capital gains from the sale of shares amounting to INR 5 million.

Under Section 115AD of the Income-tax Act, 1961, the tax implications for Global Invest GmbH would be:

• The interest income of INR 10 million would be taxed at a rate of 20%, but since the interest is from bonds referred to in section 194LD, it is taxed at a concessional rate of 5%.
• The short-term capital gains of INR 5 million from shares would be taxed at 30%. However, if these gains are from securities that fall under section 111A, the tax rate would be 15%.

Therefore, the total tax payable by Global Invest GmbH would be the sum of tax on interest income (5% of INR 10 million) and tax on short-term capital gains (15% of INR 5 million), assuming the shares sold are covered under section 111A.

Additionally, if the FII's total income only includes the interest income from securities, then no deductions under various sections like 28 to 44C or under Chapter VIA are allowed. If there are other incomes, deductions are allowed on the gross total income minus the income from securities.

The example illustrates how Section 115AD is applied to calculate the tax liability for a Foreign Institutional Investor investing in the Indian market.