Zerodha (Trading & Demat Account)
FREE Equity Delivery and MF
Flat ₹20/trade Intra-day/F&O
Zerodha (Trading & Demat Account)
FREE Equity Delivery and MF
Flat ₹20/trade Intra-day/F&O
|
|
Published on Thursday, July 18, 2019 by Chittorgarh.com Team | Modified on Tuesday, April 20, 2021
Tax liabilities of NRI investors are somewhat similar to those of a resident investor but it also depends entirely on the laws of the country where the NRI is living. For NRIs the income which is earned or accrued in India is taxable in India. And that also includes income or profit earned from investments in shares, derivatives, mutual funds, NCDs and other securities in the stock exchanges.
For NRI Taxation, a Non-Resident Indian (NRI) is defined under section 6 of the Income Tax Act, 1961 as a person who is of Indian origin or Indian citizen, is considered an NRI if he is not a resident in India.
An individual whose total taxable Indian income exceeds Rs 15 lakhs is considered to be a resident if the person:
Read detailed definition of NRI.
NRI Taxation in India
An NRI has to pay the Capital Gain Tax on the stock market investment in India. This tax depends on the tenure or the period for which these investments are held by an investor.
The Capital Gain Tax is classified into:
If the period of holding of the securities is more than a year. For debt oriented mutual funds the definition of long term is more than 3 years. The long-term capital gain applies to earning from the sale of stocks, mutual funds, debentures, property, FD interest, etc.
If the period of holding of the securities is less than a year. For debt oriented mutual funds the definition of short term is less than 3 years. The short-term capital gain applies to earning from the sale of stocks, mutual funds, debentures, property, FD interest, etc.
Segment | STCG Tax | LTCG Tax |
|---|---|---|
Equity stocks | 15% | 10% |
Mutual Funds (Equity) | 15% | 10% |
Mutual Funds (Debt) | 30% | 20% |
Derivatives (F&O) | 30% | NA |
Note: The above tax rates are as of 31-Mar-2019 and are subject to change based on the announcements in the budget.
Let's discuss each of these segments in detail:
| Sr | Factor | How is it Calculated? | Purpose |
|---|---|---|---|
|
1 |
Amount of Capital Gain |
Selling Price Less Purchase Price |
It is required to determine the amount on which TDS is to be applied |
|
2 |
Duration of holding |
If the security is held for more than 1 year, it qualifies as Long Term, and if the duration of holding the stock is less than 1 year, it is termed as Short Term. |
It is required to determine the rate at which TDS is to be deducted Long Term Capital Gains Tax Rate: 10% Short Term Capital Gains Tax Rate: 15% |
|
3 |
Source of fund for the purchase of stock |
Documentary proof viz. contract note and bank details from where the purchase was done. |
It is required to prove the source, cost of acquisition and purchase date. Impact of non-submission of documentary proof:
|
Note:
Let's assume an NRI buys 100 shares of a company in February 2018 at Rs 500 per share and sells the same on March 2019 at Rs 600. The TDS on sale of shares by NRI is calculated as:
Capital Gain = Selling price - Purchase price
Capital Gain = (600-500) * 100 = Rs 10000
Holding Period = Selling date - Purchase date = 1+ year (long term)
Therefore, the NRI tax rate is 10%.
The tax rate would also depend on the type of bank account NRE (PIS or Non-PIS) or NRO, based on the documentary proof provided. Let's look at each scenario individually-
Note: The sale proceeds taken into account in the below examples is the net sale proceeds [i.e. Exclusive of brokerage, STT and other charges].
In this scenario, you are not required to provide any documentary proof as the PIS cell would have the details of the purchase transaction. However, the requirements may differ from bank to bank and some banks may require the documentary proof. The TDS rate applicable would be 10%.
Thus, the NRE/NRO PIS account would be credited with
60,000 - [(60,000- 50,000) *10%] = 60000 - 1,000 = Rs 59,000
In this scenario, since PIS cell does not keep records of trading transactions under Non-PIS, you need to submit the documents like contract notes to prove the purchase date, price, and the source of funds. If documents are not provided, TDS is deducted at a maximum rate of 15%. Till the time documents are not received, the sale proceeds of the stocks will not be credited and will be parked in a suspense account with the bank.
If the documents are submitted, the NRE Non-PIS Account would be credited with:
60,000 - [(60,000 - 50,000) *10%] = 60000 - 1,000 = Rs 59,000
If the documents are not submitted, the NRE Non-PIS Account would not be credited and the funds will be parked in a suspense account post deduction of TDS at a higher rate of 15% as below
Since the purchase price is not known, TDS of 15% is deducted on the entire sales proceeds of 60,000 and Rs 51,000 is parked in a suspense account. [60,000 - 15% of 60,000]
In this case too, since PIS cell does not keep records of trading transactions under NRO accounts, you need to submit the documents like contract notes to prove the purchase date, price, and the source of funds. If the documents are not provided, then TDS is deducted at a maximum rate of 15%. If the documents are provided then TDS at 10% would be applicable (since the stocks were held for more than a year).
Thus if the documents are submitted, the NRO account would be credited with:
60,000 - [(60,000- 50,000) *10%] = 60,000 - 1,000 = Rs 59,000
If the documents are not submitted, the NRO account would be credited with:
60,000 - [15% of 60,000]* = 60,000 - 9,000 = Rs 51,000
* TDS is deducted at a higher rate as the purchase date is unknown and is computed on entire sales proceeds since the purchase price is not known.
NRI capital gains tax on Mutual Fund is calculated based on the type of Mutual Fund.
Fund Type | DDT |
|---|---|
Equity Mutual Funds | (10% + 12% Surcharge + 4% Cess)= 11.648% |
Money market or Liquid schemes/debt schemes | (25% + 12% Surcharge + 4% Cess)= 29.12% |
Infrastructure Debt Fund | (5% + 12% Surcharge + 4% Cess)= 5.824% |
To understand in detail about NRI Mutual Funds in India, process & taxation read NRI Mutual Fund Investment Online in India.
Tax slab of TDS on derivative is at a flat rate of 30.90% on the net profit for a calendar month. (Tax 30% + Ser Chg 3%)
The NRI tax in India is also applicable on the interest earned from bank deposits at the rate of 30%. Interest earned on Non-Resident External (NRE) accounts and Foreign Currency Non-Resident (FCNR) accounts are tax-free in India, and no TDS is deducted. Interest earned through Non-Resident Ordinary (NRO) account is subject to TDS deductions.
Note that for other income of an NRI including rents and other services, 30% TDS is deducted.
As per IT regulations, Taxes (if applicable) has to be deducted at source for all the profits earned in the equity market transactions by NRIs. TDS for NRIs are applicable to profits earned from stocks, mutual funds, debentures, and other investment instruments. Before crediting sales proceeds it is the responsibility of the payer (in this case stock broker) to calculate the applicable Taxes and deduct it at the source.
TDS is deducted by Banker at PIS Bank.
The calculation of NRI stock trading tax depends on 3 factors:
Let's assume an NRI buys 100 shares of a company in February 2018 at Rs 500 per share and sells the same on March 2019 at Rs 600. The TDS on sale of shares by NRI is calculated as:
Capital Gain = Selling price - Purchase price
= (600-500) * 100 = Rs 10000
Holding Period= Selling date - Purchase date = 1+ year (long term)
Therefore the NRI tax rate is 10%.
The tax rate would also depend on the type of bank account NRE (PIS or Non-PIS) or NRO, the sale proceeds are credited to. Let's look at each scenario individually-
NRE PIS Account- For credit on NRE PIS account, the TDS will be 0%. However, your transaction will be recorded by the PIS cell.
NRE Non-PIS Account- Since PIS cell does not keep records of trading transaction under Non-PIS, you need to submit the documents like contract notes to prove the purchase date, price and the source of funds. If documents are not provided, then it will deduct the maximum TDS at 15%. Till the time documents are not received, the sale proceeds of the stocks will not be credited and will be parked in the suspense account with Bank.
NRO Account- Since PIS cell does not keep records of trading transaction under NRO accounts, you need to submit the documents like contract notes to prove the purchase date, price and the source of funds. If documents are not provided, then it will deduct the maximum TDS at 15%. If the documents are provided then TDS at 10% (since the stocks were held for more than a year) would be applicable.
For trading in Futures & Options, an NRO account will have to be linked to the trading account. NRI investors have to pay TDS at the rate of 30.90% (Tax 30% + Service Charges 3%) for trading in F&O. The taxes are charged on the net profit for a calendar month.
Let's say you invest Rs 10,000 at a NAV of Rs 10 in a debt mutual fund in April 2016. You got 1000 units of the mutual fund. You redeem your investments, after 3 years, in April 2019 when the NAV was at Rs 20. So, your gains are-
(Selling price- Buying Price) x No. of Units
(Rs 20-Rs 10) X 1000= Rs 10,000
Since your holding is over 3 years, LTCG will be applicable on your gains. You need not have to pay tax for entire Rs 10,000 as you can also benefit from indexation.
Indexation in Mutual Funds
We all know that the value of rupee decreases with time. Inflation eats into the value of the rupee and reduces its purchasing power. This is why tax laws allow indexation benefit when you compute capital gains. It adjusts the cost of buying mutual funds for inflation while computing the gains.
The Central Board of Direct Taxes notifies the cost of inflation index (CII) applicable for the financial year. It is influenced by the rise/decrease in prices of items included in the index.
Mutual Fund Indexation Calculator (Mutual Fund Indexation Formula)
The Indexed Cost of Acquisition (ICoA), is calculated using the following formula:
ICoA = Original cost of purchase * (Cost Inflation Index of the year of sale/Cost Inflation Index of the year of purchase)
Mutual Fund Indexation Formula
Say CII of the year of sale was 1200 and CII of the year of purchase was 1100.
IC0A= Rs 10,000 x (1200/1100) = Rs 10,000 X 1.09 = Rs 10,909.09
Your cost of purchase would be considered Rs 10,909.09 instead of Rs 10,000. So, you will pay taxes on Rs 9090.91 instead of Rs 10,000.
The LTCG on Rs 9090.91 @ 10.30% will be Rs 936.37.
NRIs have to pay taxes on gains from their investments in various securities in India. The rate of taxes varies from instrument to instrument. It also depends on whether the source of funds is directed from a PIS or a non-PIS account. The type of bank account used NRE or NRO for investments also plays a role in deciding the tax eligibility and rates. NRIs should carefully understand the tax implications of every instrument and the source of the funding process before making an investment.
Yes, an NRI has to file Income Tax Return for the income earned in India under section 80C. If the income of an NRI exceeds Rs 2.5 lakhs annually, income tax is applicable.
If your tax liability exceeds Rs 10,000 in a year, then you are required to pay advance tax.
Income tax return (ITR) has to be filed before 31st July by every individual who is liable to pay taxes in India, including NRIs. ITR can also be filed by an NRI if he wants to carry forward a loss or wants to claim a refund. If the income of NRI is taxable in India and the foreign country, you can claim the Double Taxation Avoidance Agreement (DTAA) to get refunds.
Yes, the dividends are automatically credited through electronic fund transfer in the linked NRI bank account.
NRI demat account is linked to NRE or NRO Saving Bank Account at the time of account opening. The benefits from demat holding including dividend, interest, etc. are automatically credited to the linked NRI Bank Account.
NRIs usually open 2 demat accounts; NRO and NRE Demat Accounts.
NRI Dividend Repatriability:
Note:
Any corporate benefit resulting out of investments in securities on a repatriation basis will carry the right of repatriation.
While technically you can do it if you do not inform the bank or broker about your change of status, but this is against the law.
The section 6 of the Income Tax Act, 1961 and RBI circular No.8/2013-14 in India clearly define the NRI Status. The financial transactions done by an NRI are reported to the RBI by the bank, broker, Custodian or Mutual Fund AMCs.
As soon as your status changes to an NRI, you should inform the financial organizations you are dealing with in India. They will help you to convert your existing accounts (Demat, Trading, Bank etc.) to the NRI accounts and transfer holdings to the new account.
Note:
Yes, NRIs can invest in Mutual Fund from the NRO bank account on a non-repatriation basis. This is the easiest way for NRI to invest in India. NRI doesn't need PIS permission or report the transaction to RBI.
The main condition for NRI mutual fund investment is that the funds should be in Indian rupees from either of the NRI bank accounts as per FEMA regulations.
An NRI can transfer shares to resident Indian by way of sale or gift. General guidelines about the transfer of shares from NRI to resident Indian:
No RBI permission required
RBI permission required
An NRI can gift shares to a resident Indian freely. The shares acquired through the PIS route cannot be transferred by way of a gift without prior approval from RBI unless they are being transferred to a relative as defined under Section 6 of Companies Act.
From the taxability perspective, the recipient of the shares will be taxed in India if the value of shares exceeds Rs 50,000 and the recipient does not qualify as a relative. There is no tax levied on the NRI gifting the shares.
An NRI has to pay taxes on the income earned or accrued in India. An NRI is also required to pay Long-term or Short-Term Capital gains taxes on the profits made from its investments in various securities in India.
The Long-term Capital gains tax becomes applicable when security is held for more than one year. However, if the stock or mutual fund is debt oriented, the holding period to qualify as long-term is 3 years.
The Short-term Capital gains tax is applicable when security is held for less than a year. For debt-oriented stocks or mutual funds, the short-term capital gains are applied when the holding period is less than 3 years.
The capital gains tax applies to the sale of stocks, mutual funds, debentures, property, etc.
NRI capital gains tax
| Segment | STCG Tax | LTCG Tax |
|---|---|---|
Stocks |
15% |
10% |
Mutual Funds (Equity) |
15% |
10% |
Mutual Funds (Debt) |
30% |
20%* |
|
Derivatives (F&O) |
30% |
NA |
NRI Tax Rates as of 31st Mar 2019
*The LTCG of 20% on debt mutual fund is available with indexation benefit.
With effect from 1st April 2020, the dividend distribution tax at the company and the mutual fund level have been abolished and the dividend will be taxable in the hands of the investors.
The company will pass on the full dividend to the shareholders which will be taxable in the hands of the investor as per their tax slabs. This move would benefit the NRIs in the lower tax bracket and impact the NRIs in higher tax brackets (more than 20%) who would require to shell out more tax than earlier. One plus point here would be that NRIs can avail of the Double Tax Avoidance Agreement under the new regime (if India has signed DTAA with your residing country) to lower their tax burden. DTAA has dividend withholding tax in the range of 5-15% subject to certain conditions. This would benefit the NRIs in the higher tax bracket by paying lower tax amounts.
However, now the even the mutual fund will credit full dividend proceeds in the investor account without deducting any taxes which would be taxable in the hands of the NRI. With this, the dividend pay-out mutual fund options may become little costlier and complex from the taxability perspective and may shift the focus of mutual fund investment from dividend pay-out options to growth pay-out options to avoid these issues.
An NRI is required to file an income tax return in India if the taxable Indian income of an NRI exceeds Rs 2,50,000 in a financial year.
The last date for filing an income tax return for an NRI is the same as that for a resident Indian i.e. 31st July. An NRI can also claim deductions subject to certain restrictions.
An NRI is required to pay tax only on the Indian income and not on the income earned outside India. Thus, the interest earned on NRE and FCNR accounts is not taxable in India. Below are some of the examples of taxable income in India:
As per section 195 of the Income Tax Act, it is the responsibility of the person making payment to the NRI to deduct TDS before crediting the proceeds to the NRI account.
Generally, TDS is deducted by the bank with whom the NRI has opened the PIS account for trading before crediting the sale proceeds to the account. However, if the NRI is trading through the Non-PIS NRO account, it is the responsibility of the broker to calculate and deduct TDS before crediting the sales proceeds to NRI.
With the removal of the Dividend Distribution Tax in Finance Bill 2020, dividends earned from an Indian company are taxable in the hands of the shareholder effective 1st April 2020. An NRI can avail DTAA to reduce the tax burden further as applicable. In some countries, the tax rate on dividends ranges between 5-15%. This can benefit the NRI where their country of residence has signed DTAA with India.
Tax Rates on Dividend income
|
Particulars |
Tax Rate |
|---|---|
|
Dividend income from shares of an Indian company purchased in foreign currency or any other case |
20% |
|
Dividend on GDRs of an Indian Company or Public Sector Company (PSU) purchased in foreign currency |
10% |
As per Income tax rules, TDS is required to be deducted before making any payment to the NRI. Thus, an NRI is paid the dividend post deducting TDS at below rates.
Tax Rates on Dividend income
|
Particulars |
Tax Rate |
|---|---|
|
Dividend on GDRs of an Indian Company or Public Sector Company (PSU) purchased in foreign currency |
10% |
|
Dividend income from shares of an Indian company purchased in foreign currency. |
20% or rate as prescribed in DTAA whichever is lower |
|
Dividend income in any other case |
30% or rate as prescribed in DTAA whichever is lower |
The funds held in the NRE bank account can be easily converted to any other foreign currency at prevailing forex rates. However, the funds in an NRO bank account cannot be freely repatriated to any foreign currency and is subject to conditions with a maximum limit of USD 1 million per financial year.
An NRE account is a bank account to manage the foreign income in India. It is a repatriable account and the principal and interest in the account are freely repatriable without any restrictions.
An NRO account is an account to manage Indian income earned by NRI in India. An NRO account is non-repatriable by its legal nature. Earlier, the funds from the NRO account were strictly non-repatriable. However, later in May 2012, RBI permitted the repatriation from the NRO account but with conditions.
Yes, a resident Indian can transfer shares to NRI by way of a gift only post obtaining prior approval from RBI.
A resident Indian need to submit the below documents to RBI while applying for approval to transfer the shares as a gift to NRI:
From the taxability perspective, an NRI gets a tax exemption (irrespective of the value) when the gift is received from a relative (as defined in Section 6 of the Companies Act) or for marriage. Otherwise, an NRI is liable to pay tax when the value of shares exceeds Rs.50,000.
FREE Intraday Trading (Eq, F&O)
Flat ₹20 Per Trade in F&O
|
|
Will they still be TAX TREE INCOME?
what about the Old Resident PPF a/c and interest thereupon. will they be Tax Free?
What if you trade in TAX FREE BONDS - Buy or SELL and have SHORT TERM PROFIT - are they exempted as interest income?