1. As an NRI, am I eligible to buy mutual funds, stocks and shares in India?

2. If yes, do I pay any income tax when I sell these funds, stocks and shares?

3. How is the tax decided? Is it based on a flat rate for the capital gains or calulated differently?

4. What happens if there is a capital loss? Is that claimable against capital gains in the same year or in future years?

(i) As an NRI you are eligible to buy units of mutual funds, stocks and shares in India. For this purpose, you are supposed to take permission from the Reserve Bank of India which is known as PINS permission. Under the scheme you can have one NRE/NRO account designated for the purpose in a specific bank. A demat account will also have to be opened by you. The permission can be obtained by the bank on your behalf. The above permission is not required if you are investing only in mutual funds. In both cases, you will have to obtain a permanent account number.

(ii) The Income-tax will be payable in case the gain arising on the sale of units/shares is taxable in accordance with the provisions of the Act. It may be added that you have to take delivery of shares/units.

(iii) The long-term capital gain arising on the sale of equity shares and units of equity oriented mutual funds is exempt from tax provided that the transaction been subjected to securities transaction tax. The short-term gain is chargeable at the rate of 15 per cent plus applicable cess and surcharge for assessment year 2009-10 (year ending March 31, 2009) provided that the transaction has been subjected to security transaction tax. The long term capital gain arises if the shares and units are held for a period of more than one year. The short term capital gain arises in respect of those shares/units which are held for less than one year.

(iv) The short-term capital loss is adjustable against the short-term capital gain and/or long-term capital gain for the same assessment year. The long term capital loss is adjustable against the long term capital gain only. In case the loss under head capital gain (short-term and long term) is not so set off, the amount of loss not so set off is allowed to be carried forward for a period of eight years for set off against income arising under head capital gain. The short term capital loss can be set off against income arising under head capital gain. However, long-term capital loss can only be set off against long-term capital gain.