With the Government allowing NRIs to invest in the Indian share market, more and more NRIs are making their trades every day. However, this also makes NRIs curious about NRI Share Trading Tax since it is only going to cut out their respective profits, right?
Since the trading rules are not the same for NRIs as they are for a Resident Indian, NRI Share Trading Tax is also different in both cases.
Don’t worry, in this detailed review, we will walk through some of the ways through which you can save on the NRI Share Trading Tax significantly.
NRI Share Trading Tax – TDS
Resident Indians are given few privileges which are not applicable to NRIs. Tax Deduction at Source (or TDS) is definitely one of those privileges.
How? Let’s find out!
Indian residents are not subjected to TDS when they are making investments in mutual funds or stocks. However, for NRIs trading in the Indian stock or mutual fund market, TDS is applicable. You also need to open an NRI Demat Account to in fact get things started, which in itself is relatively expensive than a normal demat account.
What this means is that NRIs will have to pay NRI Share Trading Tax on the source whenever they are making a trade. The rates of these taxes can be higher as compared to a Resident Indian.
For stocks, a TDS of 15% is deducted for short term capital gains. At the same time, if we talk about Debt funds and debentures, Gold and property, their short term capital gains are taxed at a rate of 30%.
The long term gains that come through investing in gold or property are also subjected to 20% TDS.
For interests from bank deposits in an NRO account, the TDS for NRIs is as much as 30% as compared to a 10% tax rate for a Resident Indian.
This means that NRIs have to pay higher NRI Share Trading Tax.
Here is a quick summary for you again for all these taxes under the cohort of TDS:
TDS on Investment Type
TDS - Short Term Capital Gains
TDS - Short Term Debt funds and debentures, Gold, and property
TDS - Long Term Debt funds and debentures, Gold, and property
TDS - Interest from Bank Deposits
NRI Share Trading Tax – Special considerations
India has treaties with many countries where double taxation on income is avoided. In these treaties, if the income on trades is taxed in India, the NRI would not have to pay taxes again in the country of residence.
Therefore, if you are an NRI, you should check if your country falls in the above category.
If it does, your income from the trades you are making will be taxed only in India.
How to Avoid NRI Share Trading Tax?
Since the NRI Share Trading Tax is significantly higher as compared to a Resident Indian, it is important to look for ways that can avoid this tax. As we mentioned, a 15% tax rate is deducted on stocks. This takes away a huge portion of the earnings.
There are clever ways through which an NRI can avoid the NRI Share Trading Tax.
For example, if the NRI has family members in India like his son, wife, mother, or any other blood relatives, he can trade in their name.
If the member is trusted, trading through them can save the NRI a lot of taxes on the stock investment. Further, the trading account of the NRI will get the same privileges as that of a resident Indian.
In case of mutual funds, the NRI can use the resident Indian relative as the primary holder, and the NRI can enlist themselves as the secondary holder. However, in the case of equities, joint ownership is not allowed.
This is because in the latter case, NRIs have to open a specialized account with the bank.
NRI Share Trading Tax Benefits
Even though the NRIs are not given some privileges that the resident Indians are, they do get some piece of the cake.
For example, if the NRI has opened an NRE account in the bank, the interest on the capital in the bank is tax-free. Not only that, but if the NRI changes his status to Resident Indian, the interest in the NRE account remains tax-free for up to two years.
Therefore, NRIs who are using NRE account to trade using the Portfolio Investment Scheme (PIS) can make use of this benefit. If there is a huge amount of capital in the NRE savings account, the savings on the interest with the absence of tax can be significant.
Use this NRI Share Trading Tax guide to know the taxes that are charged on your NRI trading account and the way they are charged. I hope you use the ways mentioned to save money for yourself.
In case you are looking to get started with NRI Trading, let us assist you in taking the next steps forward.
If you wish to learn more about NRI Trading, here are a few references: