Receipt of shares from a relative does not constitute income

My wife and I are non-resident Indians (NRIs). A few years back, I had opened a demat account for my wife. But the company did not inform us that NRIs cannot hold shares in an ordinary demat account. So I opened another demat account in the name of my mother-in-law and transferred the shares into it (off-market mode). The nominee for this demat account is my wife. Now, in case of death of my mother-in-law, what is the correct procedure to follow up regarding the ownership of these shares or how to claim them and the tax implications? —Faizan Khan Your wife will be required to request the depository participant in writing by making an application along with a notarized copy of the death certificate issued by the competent authority and other necessary documents to transfer the securities covered by the nomination to her demat account. In case your wife continues to be an NRI at the time of transmission, it will be subject to the applicable exchange control regulations at such time, which may require her to open and maintain a non-portfolio investment scheme account. As per the existing laws, any receipt of shares by an individual from a relative does not constitute income under the head “other sources”. However, you will have to check the applicable laws at the time of the transmission to understand the correct tax and regulatory implications. I have the power of attorney to operate my brother’s (an NRI) non-resident external (NRE) account. I invested some money in a large-cap fund through this account. How will the tax deducted at source be calculated? —Nishant Garodia The tax treatment of income from equity-oriented large-cap funds depends on various factors such as residential status of the investor, nature of income, period of holding of the capital asset, and others.Dividend income received from mutual funds are exempt from tax under section 10(35) of the Income-tax Act, 1961. Like-wise, long-term capital gains arising from transfer of a unit of an equity-oriented fund where the transaction is subject to securities transaction tax (STT) is exempt from tax. If your brother receives either dividend income or long-term capital gains as detailed above, there should be no tax deduction at source. When the income earned is in the nature of short-term capital gains subject to STT, tax withholding at the rate of 15% (plus applicable surcharge and cess) would be applicable. However, the withholding would be subject to any benefits under the double taxation avoidance agreement which India might have entered into with the country in which your brother is a resident.

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