Tax implications on capital gains earned by NRIs


Like resident investors, the taxability of capital gains also depends on the holding period and the variety of investments sold. For example, a resident taxpayer has to pay tax on his global income; however, a non-resident Indian (NRI) is at risk of tax only on the income earned from Indian sources.

NRIs can invest in equity stocks and mutual funds, provided they abide by the interchange Management Act (FEMA) provisions. 

Types of investments and their tax implications:

Capital gain on equity and related instruments by NRI

For listed shares, units of equity-oriented funds, or units of business trust, and zero-coupon bonds, a holding period of quite 12 months is taken into account long run, whereas but 12 months is thought to be short-term. 

Gains on the sale of long-term assets would be considered long-term financial gain (LTCG) and gains arising from the sale of short-term assets short-term capital gains (STCG). For NRIs, LTCG on equity and equity-oriented investments is taxable at 10 percent exceeding Rs.1 lakh exemption. 

Short-term capital gains from equity and equity-oriented investments are taxable at a flat 15 percent. 

Taxability of Debt-funds and other capital assets

For debt-oriented funds, unlisted securities apart from shares, and the other capital asset, a period of over 36 months is considered future, which can be short-term. 

Long-term capital gains on debt-oriented investments or the capital asset are going to be taxable at a rate of 20 percent with indexation.

Tax exemptions available to NRIs: 

Capital gain from the sale of long-term residential property will as an exemption by purchasing a new residential house in India under Section 54. Section 54 also allows a one-time choice to invest in two against the sale of residential house property, provided the gain isn’t quite Rs.2 crore.

NRI can claim exemption from the financial gain tax by reinvesting the quantity in specified bonds within six months from the date of transfer of such property (Section 54EC).

Advance tax implications to NRI

NRIs are at risk of paying advance tax if the tax liability exceeds Rs 10,000 in an exceedingly yr. 

Applicability of TDS provisions to NRI

NRIs are subject to TDS at the applicable rates on capital gains earned at the tax rates, no matter any threshold value. The speed of TDS is 10 percent on the equity-related capital gains and 20 percent post indexation for apart from equity investments.

At the time, non-equity-oriented investments are subject to a TDS of 30 percent. 

Relief from double taxation 

The Non-resident can take relief from using the DTAA (Double Taxation Avoidance Agreement) if India contains a tax treaty signed with their residence country. Under the treaty, the non-residents can (i) Pay tax in any one country or (ii) Pay tax in both the countries and claim DTAA relief within the country of residence

So a non-resident has got to pay total tax on the capital gains whether or not his income is below the essential exemption limit. Also, that deduction under Chapter VI-A isn’t available from capital gains income.

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