Capital Gains Tax: Kotak AMC MD Nilesh Shah Flags Loophole Exploited By NRIs

Kotak Mahindra Asset Management Company's Managing Director Nilesh Shah in a recent post on X, formerly known as Twitter, flagged a loophole in India's capital gains tax treatment which can be exploited by NRIs to avoid paying capital gains tax in the country.

The post was in response to a report of the Mumbai bench of the Income Tax Appellate Tribunal's (ITAT) ruling in favour of a non-resident Indian (NRI), saying that short-term capital gains of Rs 1.35 crore from redemption of mutual fund units are not taxable in India, under the India-Singapore tax treaty, as reported by the Times of India.

"US levies hefty Exit tax on citizens becoming non-resident. India is incentivising Citizens to shift tax residency and save on capital gains tax liability. If you have significant capital gains tax liability on eligible securities, shift to UAE for more than 183 days. Your family holiday abroad will be funded from the savings on capital gains tax. Perfect example of famous dialogue of Basanti in the film Sholay "आम के आम गुठलियों के दाम"," Shah wrote on X.

He emphasised on the need for immediate amendments to the law to ensure that tax is paid in the host country and credit is taken in the reciprocal country.

"We should amend the laws immediately to ensure that tax is paid in the host country and credit is taken in the reciprocal country. If we have to persist with tax benefits for larger causes, they should only be available to foreign citizens and not to 'seasonal non-residents," Shah said.

Shah added that equitable distribution of tax burden will not take place if high taxpayers are incentivised to move abroad.

"Today it might be a small amount but tomorrow it could open a flood gate."

He called for a fair, level playing field for both honest, tax-paying citizens of India and non-resident Indians.

Shah also highlighted the challenges faced by genuine NRIs in paperwork and tax assessment, urging for streamlined processes to bring them to India.