27. Extension of capital gain exemption to Rupee Denominated Bonds.
27.1 With a view to provide relief to non-resident investors, in the wake of permission to the Indian corporates by the Reserve Bank of India (the RBI) to issue rupee denominated bonds outside India as a measure to enable the Indian corporates to raise funds from a source outside India, the Finance Act, 2016, inter alia, amended section 48 of the Income-tax Act with effect from the 1st April, 2017 so as to provide that the gains arising on account of appreciation of rupee against a foreign currency at the time of redemption of rupee denominated bond of an Indian company subscribed by him, shall be ignored for the purpose of computation of full value of consideration.
27.2 Representations were received to allow exemption from capital gain arising to secondary holders as well. Representations were also received to allow exemption in respect of transfer of Rupee Denominated Bonds from non-resident to non-resident for the purpose of increasing acceptability and transferability of such instrument in the foreign market.
27.3 In order to further provide relief in respect of gains arising on account of appreciation of rupee against a foreign currency at the time of redemption of rupee denominated bond of an Indian company to secondary holders as well, section 48 of the Income-tax Act has been amended so as to provide that the said appreciation of rupee shall be ignored for the purposes of computation of full value of consideration.
27.4 Further, with a view to facilitate transfer of Rupee Denominated Bonds from non-resident to non-resident, section 47 of the Income-tax Act has been amended so as to provide that any transfer of capital asset, being rupee denominated bond of Indian company issued outside India, by a non-resident to another non-resident shall not be regarded as transfer.
27.5 Applicability: These amendments take effect from 1st April, 2018 and will, accordingly, apply from assessment year 2018-19 and subsequent years.