Non-Resident Indians' Taxation of Equity Investments: Dividend, Capital Gain, and Interest Treatment
Taxation of NRI Income from Equities and Bank Accounts in India
A non-resident Indian (NRI) investor has sought clarity on whether income from equities and bank accounts in India is taxable. In today's Ask Wallet Wise, we break down how dividends, capital gains, and different types of interest are taxed for non-resident Indians.
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Taxation of NRI Income
For non-residents, income is only taxable in India if it is earned in India. While interest income from NRE (Non-Resident External) and FCNR (Foreign Currency Non-Resident) accounts is tax-free, interest from NRO (Non-Resident Ordinary) accounts is fully taxable in India. Moreover, interest earned on NRO accounts is subject to Tax Deducted at Source (TDS), regardless of the amount earned.
The taxation of dividend income and capital gains from listed shares and equity schemes of mutual funds also applies to non-resident Indians. Similar to resident taxpayers, non-residents are eligible for the basic exemption limit of Rs 2.5 lakh (if they are below 60). However, if the income (excluding certain capital gains) is below this limit, only residents can adjust their capital gains against the unused exemption. This benefit is not available to non-residents.
Taxation of Capital Gains
Non-resident Indians have to pay full tax on certain incomes such as short-term capital gains (STCGs) on listed shares, equity mutual fund schemes, and long-term capital gains (LTCGs) of all kinds. However, they will not have to pay any tax in India for interest and dividend income up to the amount of basic exemption applicable to them.
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Tax Rates for Capital Gains
| Type of Capital Gain | Tax Rate |
|---|---|
| Short-term Capital Gains (STCGs) on Indian equity | 20% |
| Long-term Capital Gains (LTCGs) on Indian equity (beyond initial LTCG of Rs. 1.25 lakh) | 12.50% |
In the case of non-resident Indians, they will have to pay tax on all STCGs earned on Indian equity at a flat rate of 20 percent and for LTCGs on Indian equity at 12.50 percent beyond the initial LTCG of Rs. 1.25 lakh.
Investor Takeaway
Non-resident Indians are liable to pay tax in India only on their Indian income, and not all interest received by NRIs is tax-free.
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