NRI Tax Filing: Income from Securities Held in India

Picture of by Neha Raheja
by Neha Raheja

Partner, Direct Tax

Investing in the Indian stock market has become increasingly popular among non-resident Indians (NRIs) in recent years. With the constantly changing financial and taxation landscape, it is important for NRIs to stay updated on tax regulations to ensure compliance.

Understanding NRI Status and Tax Implications:

The first step for NRIs investing in the Indian share market is to determine their tax residency status. An individual’s tax liability in India depends on their residential status, which is determined by the number of days they have spent in India during the financial year. NRIs are typically subject to disparate tax regulations compared to resident Indians. Consequently, understanding one’s tax residency status is of paramount significance before delving into the intricacies of tax filing. 

Income Sources and Taxation:

NRIs investing in the Indian share market generate income through dividends and capital gains.

Dividends are taxable in the hands of the recipient, NRI.

While, capital gains are divided into short-term and long-term gains based on the duration of shares held by such NRIs,.

summary of the taxation is tabulated as below:

Sr. No.

Income Earned

Tax Rate

1.

Dividend

As per applicable slab rate

2.

Long term capital gains of equity oriented mutual funds or equity shares

10%

3.

Short term capital gains of equity oriented mutual funds or equity shares

15%

4.

Any other long term capital gain

20%

5.

Any other short term capital gain

As per applicable slab rate

While deciding to tax the income in India, NRI shall also consider the effect of Double Taxation Avoidance Agreement (DTAA) and rate as per the DTAA.

Steps in Tax Filing for NRIs:

  • Gather Relevant Documents:
    Documents such as Form 16A, Form 26AS, and Annual Information Statements (AIS), along with other relevant documents, may be useful for filing returns in India.
  • Calculate Total Income:
    Calculate the total taxable income for the year, taking into account income from dividends, capital gains, and income from other sources.
  • Claim Tax Benefits:
    NRIs can claim deductions available under various sections of the Income Tax Act, such as Section 80C for investments in specified financial instruments.
  • File an Income Tax Return (ITR):
    Select the appropriate ITR and disclose accurate details of income, deductions and taxes.

Important Regulations to be kept in Mind:

  • Equalization Levy:
    NRIs should understand the implications of the equalization levy, which is applicable to specified digital transactions and related services.
  • Prevention of Treaty Abuse:
    The provisions of the Income Tax Act, 1961, focus on preventing treaty abuse and may impact the availability of benefits under double taxation avoidance agreements.
  • Digital Taxation:
    The digital economy’s growing influence has led to considerations of digital taxation, affecting NRIs providing digital services.

Conclusion

Tax filing for NRIs investing in the Indian share market requires understanding of tax residency, income types, and relevant tax rules. Staying updated on regulations ensures compliance and avoids legal issues.

By staying informed and seeking professional advice, NRIs can navigate taxes and investments confidently.

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